1
Exhibit 2
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STOCK PURCHASE AGREEMENT
AMONG
SUNSTONE HOTEL INVESTORS, INC.
XXXXXXXXX REAL ESTATE FUND I, X.X.
XXXXXXXXX REAL ESTATE CO-INVESTMENT PARTNERSHIP I, L.P.
AND
XXXXXX REALTY CORPORATION
DATED AS OF AUGUST 5, 1997
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TABLE OF CONTENTS
Page
ARTICLE I
THE PURCHASE AND SALE OF STOCK AND NOTES................ 2
SECTION 1.1 General...................................................... 2
SECTION 1.2 Closing...................................................... 2
SECTION 1.3 Consideration................................................ 2
(a) General........................................................ 2
(b) Legends........................................................ 3
(c) Allocation of Stock Purchase Consideration and Interest........ 4
SECTION 1.4 Pre-Closing Distribution of Earnings & Profits............... 4
SECTION 1.5 Pre-Closing Restructuring of the Company and of Non-Qualifying
Businesses................................................... 5
SECTION 1.6 Closing Deliveries........................................... 5
(a) Purchaser...................................................... 5
(b) The Funds...................................................... 6
ARTICLE II............................... 6
SECTION 2.1 Earnout............................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES..................... 16
SECTION 3.1. Representations and Warranties of the Funds.............. 16
(a) Organization and Qualification of the Company; Subsidiaries.... 16
(b) Corporate Organization of the Funds............................ 16
(c) Capitalization................................................. 17
(d) Authority of the Company Relative to Agreement................. 18
(e) Authority of the Funds Relative to Agreements.................. 18
(f) Regulatory Approvals for the Company........................... 19
(g) Regulatory Approvals for the Funds............................. 19
(h) No Conflicts - Company......................................... 19
(i) No Conflicts - Funds........................................... 20
(j) Financial Statement............................................ 20
(k) Absence of Certain Changes or Events........................... 21
(l) Compliance with Laws........................................... 22
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(m) Agreements..................................................... 23
(n) Permitted Liens................................................ 26
(o) Absence of Litigation.......................................... 26
(p) Employee Matters............................................... 26
(q) Tax Matters.................................................... 28
(r) Environmental Matters.......................................... 29
(s) Properties..................................................... 30
(t) Condition of Improvements...................................... 31
(u) Insurance...................................................... 31
(v) Transactions with Affiliates................................... 32
(w) Investment Intention........................................... 32
(x) Ability to Bear Risk........................................... 32
(y) Access to Information; Evaluation of Risks..................... 32
(z) Shares Not Registered.......................................... 32
(aa) Status of Fund................................................. 32
(ab) Brokers........................................................ 33
SECTION 3.2 Representations and Warranties of the Purchaser.............. 33
(a) Corporate Organization......................................... 33
(b) Capitalization................................................. 33
(c) Authority Relative to Agreements............................... 33
(d) No Conflict; Required Filings and Consents..................... 34
(e) SEC Filings; Financial Statements.............................. 35
(f) Absence of Certain Changes or Events........................... 35
(g) Absence of Litigation.......................................... 36
(h) Environmental Matters.......................................... 36
(i) Validity of Shares............................................. 37
(j) Transactions with Affiliates................................... 37
(k) Financing...................................................... 37
(l) Brokers........................................................ 37
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS........ 38
SECTION 4.1 Conduct of Business of the Company Pending the Closing....... 38
SECTION 4.2 Conduct of Business of the Purchaser......................... 41
SECTION 4.3 Access to Information; Confidentiality....................... 41
SECTION 4.4 Employee Benefits Matters.................................... 42
SECTION 4.5 Directors' and Officers' Indemnification and Insurance....... 43
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SECTION 4.6 Registration Rights Agreement................................ 43
SECTION 4.7 Further Action; Reasonable Best Efforts...................... 43
SECTION 4.8 Public Announcements......................................... 44
SECTION 4.9 Maintenance of REIT Qualification............................ 44
SECTION 4.10 Transfer Restrictions.................................... 44
SECTION 4.11 Board Representation..................................... 45
SECTION 4.12 Amendment of Articles of Incorporation................... 46
SECTION 4.13 Non-Solicitation. ...................................... 47
SECTION 4.14 No Negotiation........................................... 47
SECTION 4.15 Organization and Qualification of Subsidiaries........... 47
SECTION 4.16 Licenses and Permits..................................... 47
SECTION 4.17 Additional Information................................... 48
SECTION 4.18 New York Stock Exchange Listing.......................... 48
SECTION 4.19 Share Trust.............................................. 48
SECTION 4.20 Earnings and Profits Distribution........................ 48
SECTION 4.21 GMX...................................................... 50
SECTION 4.22 Non-Core Assets.......................................... 50
ARTICLE V
CONDITIONS TO THE CLOSING....................... 50
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger.. 50
(a) Government Approvals........................................... 50
(b) No Injunctions or Restraints; Illegality....................... 50
(c) Maintenance of REIT Qualification.............................. 51
(d) Earnings and Profits Certification............................. 51
(e) Confirmation of Exempted Holder Status for Funds............... 51
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SECTION 5.2 Conditions to Obligations of Purchaser....................... 51
(a) Representations and Warranties................................. 52
(b) Performance of Obligations of the Company and the Funds........ 52
(c) Required Consents; Governmental Approvals...................... 52
(d) No Material Adverse Change..................................... 52
(e) Legal Opinions................................................. 53
SECTION 5.3 Conditions to Obligations of the Company and the Funds....... 53
(a) Representations and Warranties................................. 53
(b) Performance of Obligations of the Purchaser.................... 53
(c) Required Consents; Governmental Approvals...................... 53
(d) No Material Adverse Change..................................... 54
(e) Legal Opinions................................................. 54
(f) Confirmation of Exempt Purchase Status for Funds............... 54
(g) Distribution\Restructuring..................................... 54
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER................... 55
SECTION 6.1 Termination.................................................. 55
SECTION 6.2 Effect of Termination........................................ 55
SECTION 6.3 Reports...................................................... 56
SECTION 6.4 Fees and Expenses............................................ 56
SECTION 6.5 Amendment.................................................... 56
SECTION 6.6 Waiver....................................................... 56
ARTICLE VII
GENERAL PROVISIONS.................................. 56
SECTION 7.1 Survival of Representations, Warranties and Agreements;
Indemnification.............................................. 56
(a) Survival....................................................... 56
(b) Indemnification by Purchaser................................... 57
(c) Indemnification by the Funds................................... 57
(d) Limitations on Indemnification................................. 57
(e) Third-Party Claims............................................. 58
(f) Termination of Indemnification................................. 58
(g) Exclusive Remedy............................................... 59
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(h) Calculation of Loss and Expenses............................... 59
SECTION 7.2 Notices...................................................... 59
SECTION 7.3 Certain Definitions.......................................... 60
SECTION 7.4 Severability................................................. 68
SECTION 7.5 Entire Agreement; Assignment................................. 68
SECTION 7.6 Parties in Interest.......................................... 68
SECTION 7.7 Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial; Specific Performance.................................. 68
SECTION 7.8 Interpretation............................................... 69
SECTION 7.9 Counterparts................................................. 70
SECTION 7.10 No Recourse.................................................. 71
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of August 5, 1997 (this
"Agreement"), among SUNSTONE HOTEL INVESTORS, INC., a Maryland corporation (the
"Purchaser"), XXXXXXXXX REAL ESTATE FUND I, L.P., a Delaware limited partnership
("Xxxxxxxxx Fund"), Xxxxxxxxx Real Estate Co-Investment Partnership I, L.P., a
Delaware limited partnership ("Xxxxxxxxx Co-Investment Fund" and collectively
with Xxxxxxxxx Fund, the "Funds"), and XXXXXX REALTY CORPORATION, a Minnesota
corporation (the "Company").
WHEREAS, the Funds own 100 shares (the "Stock") of common stock (the
"Company Common Stock"), par value $.10 per share, of the Company; and
WHEREAS, the Stock constitutes all of the outstanding shares of the
capital stock of the Company; and
WHEREAS, the Purchaser desires to purchase from the Funds, and the
Funds desire to sell to the Purchaser, all of the Stock upon the terms and
subject to the conditions set forth herein (the sale and purchase of the Stock
being referred to herein as the "Stock Purchase"); and
WHEREAS, the Company has an outstanding promissory note in favor of
the Xxxxxxxxx Fund in the principal amount of $36,394,440 (the "Xxxxxxxxx Note")
and an outstanding promissory note in favor of the Xxxxxxxxx Co-Investment Fund
in the principal amount of $3,605,560 (the "Co-Investment Note" and collectively
with the Xxxxxxxxx Note, the "Notes"); and
WHEREAS, the Purchaser desires to purchase from the Funds, and the
Funds desire to sell to the Purchaser, the Notes upon the terms and subject to
the conditions set forth herein (the sale and purchase of the Notes being
referred to herein as the "Notes Purchase"); and
WHEREAS, the Board of Directors of the Purchaser has approved, and
deems it advisable and in the best interest of its stockholders to consummate
the Stock Purchase and the Notes Purchase; and
WHEREAS, the Purchaser, the Company and the Funds desire to make
certain representations, warranties, covenants and agreements in connection with
the Stock Purchase and also to prescribe various conditions to the Stock
Purchase.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, mutual covenants and agreements herein contained,
and intending to be legally bound hereby, the Purchaser, the Company and the
Funds agree as follows:
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ARTICLE I
THE PURCHASE AND SALE OF STOCK AND NOTES
SECTION 1.1 General. Upon the terms and subject to the conditions
set forth in this Agreement, the Funds shall sell to the Purchaser, and the
Purchaser shall purchase from the Funds, the Stock and Notes at the Closing (as
hereinafter defined). The consideration for the Stock and the Notes shall be
paid as provided in Section 1.3.
SECTION 1.2 Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 6.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Stock Purchase and the
Notes Purchase (the "Closing") shall take place on the later of (i) October 15,
1997 (or such earlier date as the Purchaser may designate at its discretion on
at least two business days' prior written notice to the Funds) and (ii) the date
which is two business days following satisfaction or waiver of the conditions
set forth in Article V (other than with respect to actions to take place on the
date of Closing or the day preceding the date of Closing) at the offices of
Xxxxxxx, Phleger & Xxxxxxxx, 0000 XxxXxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx,
Xxxxxxxxxx 00000, unless another date, time or place is agreed to in writing by
the parties hereto; provided that in the event the condition precedents set
forth in Article V are satisfied on or after October 15, 1997 but the Purchaser
does not yet have available all necessary financing to consummate the Closing,
the Purchaser may specify that the Closing Date will occur on the first date
that all such financing is available (but in no event shall such date be later
than December 23, 1997) provided that the Purchaser has been using, and
continues to use, reasonable best efforts to obtain such financing at the
earliest practicable date and the Purchaser delivers to the Funds (x) a letter
from Bank One of Arizona confirming that its commitment remains in full force
and effect and unmodified in any material respect or written financial
commitments in form and substance reasonably acceptable to the Funds from other
financial institutions reasonably acceptable to the Funds with respect to the
financing contemplated by the Bank One of Arizona Commitment and (y) written
financing commitments in form and substance reasonably acceptable to the Funds
from Xxxxxxx Xxxxx & Co. or from other financial institutions reasonably
acceptable to the Funds with respect to all equity and other financing that is
required to consummate the transactions contemplated by this Agreement. The
actual date and time of the Closing are referred to herein as the "Closing
Date."
SECTION 1.3 Consideration.
(a) General. (i) The consideration for the Stock shall consist of:
(i) $94,680,000 in cash (the "Cash Consideration"); provided, however, that the
amount payable pursuant to this clause (i) shall be reduced by an amount equal
to the sum of the accumulated earnings and profits through the Closing Date as
determined pursuant to Section 1.4 (for purposes of this Section 1.3(a), the
accumulated earnings and profits as determined pursuant to Section 1.4 shall not
be reduced by any distributions made after the date of this Agreement), plus
$250,000; provided further, that if the Closing has not occurred on or before
October 15, 1997, the amount
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of cash payable to the Funds at Closing shall be increased by an amount equal to
a 10% per annum return on $151,680,000 for the period beginning on (and
including) October 16, 1997 through (but excluding) the Closing Date (it being
understood, however, that if the Closing Date is October 16, 1997, the
consideration payable will be increased by one day's return) which return shall
be computed on the basis of a 365-day year and for the actual number of days
elapsed in the period during which it accrues, (ii) 2,284,262 shares (the
"Purchaser Common Stock Consideration") of common stock, par value $.01 per
share, of the Purchaser (the "Purchaser Common Stock"); provided, however, that
if, after the date of this Agreement and prior to the Closing Date, (x) the
issued and outstanding shares of Purchaser Common Stock shall have been changed,
or a record date shall have been set for a change of such issued and outstanding
shares, into a different number of shares or a different class by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination, exchange of shares or otherwise, the Purchaser Common Stock
Consideration shall be correspondingly adjusted to reflect such change or (y)
the Purchaser shall effect a merger, consolidation or other business
combination, then at the Closing the Funds shall be entitled to receive such
consideration under this clause (ii) as the Funds would have received in such
merger, consolidation or other business combination had the Funds owned the
Purchaser Common Stock Consideration at the time of such transaction (iii)
250,000 shares (the "Purchaser Convertible Preferred Stock Consideration" and
collectively with the Cash Consideration and Purchaser Common Stock
Consideration, the "Stock Purchase Consideration") of convertible preferred
stock, par value $.01 per share, of the Purchaser (the "Purchaser Convertible
Preferred Stock") having the powers, preferences, and other rights set forth in
the articles supplementary attached hereto as Exhibit 1.3 (the "Certificate of
Designation"), and (iv) any payment made pursuant to Article II herein.
(ii) The consideration for each Note shall consist of the
outstanding principal amount of such Note ($36,394,440 in the case of the
Xxxxxxxxx Note and $3,605,560 in the case of the Co-Investment Note) plus all
accrued and unpaid interest thereon through the Closing Date (collectively, the
"Note Purchase Consideration") and shall be paid to the holder of such Note.
(b) Legends. The certificate (or certificates) representing the
Purchaser Common Stock Consideration and Purchaser Convertible Stock
Consideration shall bear the following legend (until such time as subsequent
transfers thereof are no longer restricted in accordance with the Securities Act
of 1933, as amended (the "Securities Act")):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
GIVEN, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED,
OR OTHERWISE DISPOSED OF UNLESS SUCH GIFT, SALE, ASSIGNMENT,
TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
COMPLIES WITH THE PROVISIONS OF THE STOCK PURCHASE
AGREEMENT DATED AS OF AUGUST 5, 1997 (AS AMENDED,
SUPPLEMENTED OR OTHERWISE MODIFIED, THE "STOCK PURCHASE
AGREEMENT") AMONG SUNSTONE HOTEL INVESTORS, INC. (THE
"COMPANY"), XXXXXXXXX REAL ESTATE FUND I, L.P., XXXXXXXXX
REAL ESTATE CO-INVESTMENT PARTNERSHIP I, L.P. AND XXXXXX
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REALTY CORPORATION. A COPY OF THE STOCK PURCHASE AGREEMENT IS ON FILE WITH
THE SECRETARY OF THE COMPANY. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, ARE SUBJECT TO
THE PROVISIONS (INCLUDING THE RESTRICTIONS ON TRANSFER) SET FORTH IN THE
STOCK PURCHASE AGREEMENT AND NO GIFT, SALE, ASSIGNMENT, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT (A) IN COMPLIANCE WITH RULE 144 UNDER THE
ACT, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR (C) IF THE COMPANY
HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL WHICH SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH GIFT, SALE,
ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE RULES AND
REGULATIONS IN EFFECT THEREUNDER AND IS NOT IN VIOLATION OF APPLICABLE
STATE SECURITIES LAWS. ADDITIONALLY, IF THE HOLDER IS A CITIZEN OR
RESIDENT OF ANY COUNTRY OTHER THAN THE UNITED STATES, OR THE HOLDER
DESIRES TO EFFECT ANY SUCH TRANSACTION IN ANY SUCH COUNTRY, THE COMPANY
MUST BE FURNISHED WITH A REASONABLY SATISFACTORY OPINION OR OTHER ADVICE
OF COUNSEL FOR THE HOLDER THAT SUCH TRANSACTION WILL NOT VIOLATE THE LAWS
OF SUCH COUNTRY. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, ACKNOWLEDGES THAT IT IS BOUND BY THE PROVISIONS OF THE STOCK
PURCHASE AGREEMENT TO THE EXTENT PROVIDED THEREIN."
(c) Allocation of Stock Purchase Consideration and Interest. All
Stock Purchase Consideration shall be paid to each of the Funds pro rata in
accordance with their respective percentage ownership of the "Company Common
Stock" as set forth on Schedule 1.3(c).
SECTION 1.4 Pre-Closing Distribution of Earnings & Profits.
Notwithstanding anything in this Agreement to the contrary, on the day before
Closing, the Company and its Subsidiaries shall have the right to make a
distribution (the "Distribution") to the Funds entirely from the assets of the
Company and its Subsidiaries (including with the proceeds of the Distribution
Financing (as defined in Section 4.20)), in an amount equal to the sum of the
amount of accumulated earnings and profits through the Closing Date determined
by KPMG Peat Marwick, LLP, ("KPMG") as described below plus $250,000. The
determination of accumulated earnings and profits for purposes of this Section
1.4 shall take into account the estimated activities of the Company and its
Subsidiaries through the Closing Date. It is understood and
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agreed that the Funds do not anticipate making, and will under no circumstances
be obligated to make, the Distribution unless the Funds shall have received a
certificate from the Purchaser, signed on behalf of the Purchaser by its chief
financial officer, stating that all conditions set forth in Article V (other
than the Distribution) have been satisfied and that the Purchaser will proceed
with the Closing but thereafter the Distribution and the Distribution Financing
will not be contingent on the Closing. The Company shall obtain a certification
of the earnings and profits calculation from KPMG. The Company shall use its
reasonable best efforts to have KPMG provide such certification to the Company
and to the Purchaser within 30 days of the execution of this Agreement.
SECTION 1.5 Pre-Closing Restructuring of the Company and of Non-
Qualifying Businesses.
Subject to the Funds receipt of evidence satisfactory to them that
the conditions set forth in Article V are or will be satisfied within two days,
prior to the Closing the Company and its Subsidiaries will be restructured in
the manner identified in Steps 1 through 4 of Schedule 1.5 (the "Pre-Closing
Restructuring"). The specific legal steps required to effect the Restructuring
will be determined by the Purchaser in consultation with the Funds and the
Company. The Purchaser will be responsible at its cost and expense for the
preparation of all documentation and making all necessary legal arrangements to
effect the Pre-Closing Restructuring, except for any expenses or costs which the
Funds are expressly required to pay under this Agreement relating to the Stock
Purchase and in connection with obtaining any Required Consent. The Purchaser
will consult with the Funds and the Company, and provide the Funds and the
Company a reasonable opportunity to review and comment on, all documentation and
other arrangements relating to the Pre-Closing Restructuring and the Pre-Closing
Restructuring will be effected in a manner that does not impose any tax or other
liability or obligation of any nature on the Funds. The Funds, the Company, and
the Company's Subsidiaries and, to the extent within the Company's control, the
Company's Investment Entities, shall cooperate with the Purchaser in connection
with the matters contemplated by this Section 1.5. The Company and the
Subsidiaries shall not be required to consummate any material aspect of the
Pre-Closing Restructuring (including, without limitation, any merger or
combination of any Subsidiaries or the Company or any other action that would
adversely affect the Company or any of its Subsidiaries or Investment Entities
if the Closing does not occur) prior to the day preceding the Closing Date and
the presentation of reasonable evidence that the conditions set forth in Article
V will be satisfied no later than the Closing.
SECTION 1.6 Closing Deliveries.
(a) Purchaser. At the Closing, the Purchaser shall: (i) pay, or
cause to be paid, to the Funds by wire transfer in immediately available funds
to one or more bank accounts designated by the Funds an aggregate amount equal
to the Cash Consideration in respect of the Stock and the Note Purchase
Consideration in respect of the Notes, (ii) deliver to the Funds certificates,
registered in the Funds' names, representing the Purchaser Common Stock
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Consideration and the Purchaser Convertible Preferred Stock Consideration and
(iii) execute and deliver to the Funds the Registration Rights Agreement in
accordance with Section 4.6.
(b) The Funds. Contemporaneously with (i) the receipt by the Funds
of the Cash Consideration and the Note Purchase Consideration and (ii) the
receipt by the Funds of the certificates representing the Purchaser Common Stock
Consideration and the Purchaser Convertible Preferred Stock Consideration, the
Funds shall deliver to the Purchaser (x) certificates representing the Stock,
duly endorsed for transfer to the Purchaser, or accompanied by stock powers duly
executed in favor of the Purchaser, with all necessary transfer stamps attached
thereto and cancelled and (y) the Notes duly endorsed for transfer to the
Purchaser.
ARTICLE II
SECTION 2.1 Earnout.
(a) Payment of Preliminary Earn-Out Payment. (i) On the Earn-Out
Payment Date (as defined below), if the Preliminary Earn-Out Ratio (as defined
above) is equal to or greater than 11%, the Purchaser shall at its election
(which shall be exercised in writing delivered to the Funds no later than the
first day of the Trading Period; if no such notice is received by the Funds
prior to the first day of the Trading Period the Purchaser shall be deemed to
have elected to pay cash) either (i) pay to the Funds by wire transfer in
immediately available funds to one or more bank accounts designated by the Funds
an aggregate amount of cash or (ii) issue shares of Purchaser Common Stock in
the manner and number calculated as provided in paragraph (ii) below (the
"Preliminary Earn-Out Payment") equal to the Preliminary Earn-Out Payment Amount
(as defined below).
(ii) The number of shares of Purchaser Common Stock to be
issued to the Funds in payment of the Preliminary Earn-Out Payment calculated
pursuant to Section 2.1(a)(i) above shall be fixed based on the twenty "Trading
Days" (the "Trading Period") weighted average (based on the average daily
volume) "Closing Price" of the Purchaser Common Stock during the period ending
three Trading Days prior to the relevant date of payment. The "Closing Price" of
any day shall mean the last reported sale price, regular way or in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange, of the Purchaser Common Stock, or, if
not then listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Company Purchaser Common Stock are listed or admitted to trading or, if such
Purchaser Common stock are not then listed or admitted into trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Security Dealers, Inc. Automated
Quotation System, or if such system is no longer in use, the principal other
automated quotations system that may then
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be in use, or, if Purchaser Common Stock is not then quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Purchaser Common Stock, as
selected in good faith by the board of directors of the Purchaser. "Trading Day"
shall mean a day on which the principal national securities exchange on which
the Purchaser Common Stock are listed or admitted to trading as open for the
transactions of business or, if the Purchaser Common Stock is not listed or
admitted to trading on any national securities exchange, shall mean any day
other than a Saturday, a Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive order to
close.
(iii) Any shares of Purchaser Common Stock issued pursuant to
Section 2.1(a)(ii) above shall contain the legend required under Section 1.3(b).
(b) Determination of Earn-Out Payment Amount.
(i) Not later than four (4) business days prior to the
Earn-Out Payment Date, the Purchaser shall deliver to the Funds a certificate
(the "Purchaser's Earn-Out Calculation Certificate") in the form set forth on
Schedule 2.1(b) setting forth and certifying the Purchaser's good faith
determination of (A) the Adjusted 1999 EBITDA (as defined below), (B) the
Adjusted Valuation Amount (as defined below), (C) the aggregate Capital
Expenditures (as defined below) incurred after the Closing (and prior to
September 30, 1998) for September Qualifying Projects (as defined below), (D)
the aggregate Capital Expenditures incurred after the Closing (and prior to
December 31, 1998) for December Qualifying Projects (as defined below), (E) the
aggregate Capital Expenditures incurred after the Closing (and prior to March
31, 1999) for March Qualifying Projects (as defined below), (F) 1997/1998 Room
Revenues (as defined below), (G) Lessee 1999 Adjusted Portfolio EBITDA, (H)
Excess Lessee Adjusted EBITDA, (I) the Earn-Out Ratio (as defined below) and (J)
the Earn-Out Payment Amount (as defined below), which certificate shall set
forth in reasonable detail the basis for each of such determinations.
Purchaser's determination of the Earn-Out Ratio as set forth in the Purchaser's
Earn-Out Calculation Certificate is referred to herein as the "Preliminary
Earn-Out Ratio" and Purchaser's determination of the Earn-Out Payment Amount as
set forth in the Purchaser's Earn-Out Calculation Certificate is referred to
herein as the "Preliminary Earn-Out Payment Amount." The amounts set forth in
the Purchaser's Earn-Out Calculation Certificate shall be derived from the
Purchaser's and Lessee's audited financial statements. The Funds shall have the
right to review and copy all of the computations and underlying books and
records of the Purchaser and its Subsidiaries and the Lessee that are relevant
to the determination of any amounts set forth in the Purchaser's Earn-Out
Calculation Certificate, including, without limitation, all underlying books and
records (including auditors work papers) relating to the preparation of the
Purchaser's and Lessee's audited financial statements to the extent they relate
to any of the amounts set forth in Purchaser's Earn-Out Calculation Certificate,
and to have reasonable access to the Purchaser's and its Subsidiaries' and
Lessee's employees, and their respective books and records, in connection
therewith.
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(ii) The Funds shall notify the Purchaser in writing ("Funds'
Dispute Notice") within forty-five (45) days after receiving the Purchaser's
Earn-Out Calculation Certificate if the Funds disagree with the Purchaser's
determination of the Earn-Out Payment Amount, which notice shall set forth in
reasonable detail each item which the Funds' dispute and the basis for their
disagreement. If no Funds' Dispute Notice is received by the Purchaser within
such forty-five (45) day period, the Purchaser's determination of the Earn-Out
Payment Amount shall be final and binding on the parties and shall be the final
Earn-Out Payment Amount.
(iii) The Funds and Purchaser shall negotiate in good faith to
resolve any disagreement with respect to the final Earn-Out Payment Amount. If
the Funds and the Purchaser are unable to agree with respect to the final
Earn-Out Payment Amount within thirty (30) days of the receipt by the Purchaser
of the Funds' Dispute Notice, the Funds and the Purchaser shall select a
mutually acceptable "big six" accounting firm other than the accounting firm
then engaged by either party (the "Independent Accounting Firm"), and submit
their dispute to the Independent Accounting Firm. The Independent Accounting
Firm will be requested to review only the disputed items identified and not
previously resolved by the Funds and the Purchaser. The Independent Accounting
Firm shall resolve such dispute after reviewing written submissions of the Funds
and the Purchaser supporting their respective determinations of the items in
dispute and stating each of their calculations of the final Earn-Out Payment
Amount. The Independent Accounting Firm shall make an independent determination
of all disputed items and then calculate the final Earn-Out Payment Amount based
upon such independent determination and the Funds' and Purchaser's determination
of all amounts not in dispute. In its determination, the Independent Accounting
Firm shall be entitled to rely on presentations prepared by the Funds and the
Purchaser. The decision of the Independent Accounting Firm shall be conclusive
between, and final and binding on, the parties hereto. The fees and expenses of
the Independent Accounting Firm will be paid by the party (either the Funds or
the Purchaser) whose calculation of the Earn-Out Payment Amount deviates the
furthest from the final Earn-Out Payment Amount as calculated by the Independent
Accounting Firm.
(iv) Upon the final determination of the Earn-Out Payment
Amount in accordance herewith, the Purchaser shall pay to the Funds the amount
(if any) by which the final Earn-Out Payment Amount exceeds the Preliminary
Earn-Out Payment and the Funds shall pay to the Purchaser the amount (if any) by
which the Preliminary Earn-Out Payment exceeds the final Earn-Out Payment
together, in either case with interest thereon from the date of any Dispute
Notice at a rate of interest equal to the "Prime Rate" established by Xxxxx
Fargo Bank, N.A. on the date of payment. Such payment shall be made within five
(5) business days after all disputes, if any, have been resolved as set forth
above. Such payment shall be by wire transfer of immediately available funds to
a bank account specified by the recipient not less than two (2) business days
prior to such payment date. In the event that the final Earn-Out Payment Amount
exceeds the Preliminary Earn-Out Payment by more than $250,000 then the
Purchaser at its election may rather than paying cash as provided above issue
such number of shares of Purchaser Common Stock as is calculated in accordance
with Section 2.1(a)(ii) above.
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(c) Calculation of Amounts with Respect to Partially-Owned Hotels.
With respect to the Portfolio Hotels set forth on Schedule 2.1(c), the
determinations of Room Revenue, clause (B) and (C) of Adjusted Valuation Amount,
Sale Proceeds, Capital Expenditures, clauses (A) and (B) of EBITDA, and Capital
Expenditures, Lessee 1999 Portfolio Revenue and Lessee 1999 Adjusted Portfolio
EBITDA shall all be adjusted to reflect the pro rata interest in such Portfolio
Hotels as set forth on Schedule 2.1(c).
(d) Allocation of Earn-Out Payment Amount. The Earn-Out Payment
Amount consisting of cash shall be paid and the Earn-Out Payment Amount
consisting of Purchaser Common Stock shall be issued to each of the Funds pro
rata in accordance with their respective percentage ownership of the Company
Common Stock as set forth on Schedule 1.3(c).
(e) Defined Terms. As used herein, the following terms will have the
following meanings:
"Adjusted 1999 EBITDA" means the sum of (A) 1999 EBITDA minus (B)
the 1999 Capital Expenditure Reserve.
"Adjusted Valuation Amount" means the sum of (A) $322,000,000 minus
(B) the sum of the cash consideration plus the Fair Market Value of any
non-cash consideration received by the Purchaser and its Subsidiaries and
Investment Entities in connection with the sale, transfer or other
disposition to any Person other than Purchaser or any of its Subsidiaries
or Investment Entities of any asset or other right owned, possessed or
otherwise held immediately prior to the Closing by the Company, any of the
Company's Subsidiaries or any of the Company's Investment Entities other
than any Portfolio Hotel, plus the outstanding principal amount of any
indebtedness directly or indirectly assumed by the purchaser or transferee
in such transaction plus the Fair Market Value of any other liabilities
directly or indirectly assumed by the purchaser or transferee in such
transaction, minus (C) the aggregate Sale Proceeds from all Asset Sales
that close after the Closing and prior to December 31, 1999, minus (D) the
aggregate amount of all payments received by the Purchaser or its
Subsidiaries after the Closing Date and on or prior to December 31, 1999
(or, if earlier, the date of conversion of the relevant mortgage note into
equity of the maker thereof) in respect of the mortgage notes currently
held by the Company and its Subsidiaries (net of any deficiency funding or
equity contribution by the Purchaser into any partnership or limited
liability company that owns the Portfolio Hotel relating to the applicable
mortgage note) plus (E) in the event that the Purchaser or its
Subsidiaries elects to exercise the termination rights under any of the
telephone service agreements with Innkeepers Telemanagement & Equipment
Corporation ("Itec") set forth on Schedule 3.1(m) hereto so that such
agreement is terminated in whole or in part or the Purchaser otherwise
elects to modify any such agreements in consideration for the payment by
the Purchaser to Itec prior to January 1, 1999, an amount equal to the
lesser of (x) all payments required to be made to Itec upon such
termination or modification of such agreement as currently in effect or
(y) the payments actually made by Purchaser or its Subsidiaries in
consideration for such termination or modification.
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"Asset Sales" means any direct or indirect sale, assignment,
exchange, transfer or other disposition of any Portfolio Hotel or any
portion thereof or direct or indirect interest therein by the Purchaser or
any Subsidiary of the Purchaser (other than to the Purchaser or to a
Subsidiary of the Purchaser) other than the lease of any such Portfolio
Hotel to the Lessee. For purposes hereof, any Condemnation shall be deemed
to be an Asset Sale.
"Capital Expenditures" means (i) capital expenditures of the
Purchaser, its Subsidiaries and its Investment Entities, in each case
determined in accordance with GAAP applied on a basis consistent with the
Purchaser's audited consolidated financial statements for the year ended
December 31, 1996 and (ii) the sum of the cash consideration plus the Fair
Market Value of any non-cash consideration paid by the Purchaser or its
Subsidiaries or Investment Entities in connection with the buy-out of any
currently existing ground lease of any real property on which any
Portfolio Hotel is located, including without limitation the Portfolio
Hotel located in Fort Worth, Texas, provided that there shall be excluded
from the amount of capital expenditures all expenditures with respect to
the repair or replacement of any insured loss or damage (but such
exclusion shall apply only to the extent of the insurance proceeds
recoverable by the Purchaser, its Subsidiaries or its Investment
Entities).
"Capital Expenditures Reserve" means, with respect to any period, an
amount equal to the product of (A) 0.04 multiplied by (B) the aggregate
Room Revenues for all Portfolio Hotels for such period.
"Completed in Full" means (i) in respect of a Qualifying Project
consisting of the renovation of guest rooms, that not less than 95% of the
guest rooms at the applicable Portfolio Hotel have been renovated and are
available for rent as of the relevant date and (ii) with respect to all
other Qualifying Projects, that such Qualifying Project requires no
additional work as of the relevant date other than the completion of
"punch list" items.
"Condemnation" has the meaning set forth in the Existing Lease
Agreement.
"December Qualifying Project" means a Qualifying Project (other than
a September Qualifying Project or March Qualifying Project) that is
Completed in Full on or prior to December 31, 1998.
"Earn-Out Payment Amount" shall mean the following amount:
(i) If the Earn-Out Ratio is less than 11%, the Earn-Out
Payment Amount will be zero.
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(ii) If the Earn-Out Ratio is equal to or greater than 11% but
less than 11.5%, then the Earn-Out Payment Amount will equal the
following amount:
(Earn-Out Ratio) - 11% x $1,650,000
0.5%
(iii) If the Earn-Out Ratio is equal to or greater than 11.5%
but less than 12%, then the Earn-Out Payment Amount will equal the
sum of $1,650,000 plus the following amount:
(Earn-Out Ratio) - 11.5% x $3,300,000
0.5%
(iv) If the Earn-Out Ratio is equal to or greater than 12% but
less than 12.5%, then the Earn-Out Payment Amount will equal the sum
of $4,950,000 plus the following amount:
(Earn-Out Ratio) - 12% x $5,362,500
0.5%
(v) If the Earn-Out Ratio is equal to or greater than 12.5%
but less than 13.0%, then the Earn-Out payment Amount will equal the
sum of $10,312,500 plus the following amount:
(Earn-Out Ratio) - 12.5% x $6,187,500
0.5%
(vi) If the Earn-Out Ratio is equal to or greater than 13.0%,
then the Earn- Out Payment Amount will equal $16,500,000.
"Earn-Out Payment Date" means April 30, 2000 or, if such day is not
a business day, the immediately succeeding business day.
"Earn-Out Ratio" means the quotient, expressed as a percentage
carried out to four decimal places (e.g. 12.1234%), of (A) Adjusted 1999
EBITDA divided by (B) the sum of (1) the Adjusted Valuation Amount, plus
(2) 100% of all Capital Expenditures incurred after the Closing (and prior
to September 30, 1998) for September Qualifying Projects, plus (3) 75% of
all Capital Expenditures incurred after the Closing (and prior to December
31, 1998) for December Qualifying Projects, plus (4) 50% of all Capital
Expenditures incurred after the Closing (and prior to March 31, 1999) for
March Qualifying Projects, minus (5) .04 multiplied by 1997/1998 Room
Revenues, plus (6) the Earn-Out Payment Amount.
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"EBITDA" means, with respect to any Portfolio Hotel for any period,
the sum of (A) total revenue of the Purchaser, its Subsidiaries and its
Investment Entities for such Portfolio Hotel during such period determined
in accordance with GAAP applied on a basis consistent with the Purchaser's
audited consolidated financial statements for the year ended December 31,
1996 (including any proceeds of any business interruption or lost rental
insurance policy maintained by the Purchaser but excluding any interest
income of the Purchaser, its Subsidiaries and its Investment Entities)
minus (B) total real estate tax, personal property tax, insurance expense,
ground rent and equipment lease expense of the Purchaser, its Subsidiaries
and its Investment Entities for such Portfolio Hotel during such period
determined in accordance with GAAP applied on a basis consistent with the
Purchaser's audited consolidated financial statements for the year ended
December 31, 1996. Notwithstanding the foregoing, in the event that any
major renovation takes place at a Portfolio Hotel during 1999 and the 1999
EBITDA for such Portfolio Hotel that is less than the EBITDA for such
Portfolio Hotel during the year ended December 31, 1997 increased by the
amount of any percentage increase in the RevPar Index from 1997 to 1999,
then EBITDA for such Portfolio Hotel for 1999 will equal the EBITDA for
such Portfolio Hotel in 1997 increased by the amount of any percentage
increase in the RevPar Index from 1997 to 1999.
"Excess Lessee Adjusted EBITDA" means (x) if Lessee 1999 Adjusted
Portfolio EBITDA is less than zero, the Lessee 1999 Adjusted Portfolio
EBITDA and ((y) if Lessee 1999 Adjusted Portfolio EBITDA is zero or
greater, the amount, if any, by which (A) Lessee 1999 Adjusted Portfolio
EBITDA exceeds (B) the product of 0.0225 multiplied by Lessee 1999
Portfolio Revenue.
"Existing Lease" means the form of Lease Agreement between Sunstone
Hotel Investors, L.P., as lessor, and the Lessee, as lessee, in
substantially the form delivered to the Funds prior to the date hereof.
"Fair Market Value" shall mean, in respect of any asset, securities
or other property (the "Valued Asset"), the fair market value of the
Valued Asset as determined by agreement of the Funds and the Purchaser. If
the Funds and the Purchaser fail to agree on such fair market value within
20 business days, then the Funds shall provide the Purchaser with a list
of three nationally recognized investment banking firms or other
appraisers with expertise in valuing similar assets to the Valued Asset.
The Purchaser shall, within 5 business days of receiving such list, select
one of such three investment banking firms or other appraisers (the
"Appraiser") to determine the fair market value of the Valued Asset. The
Appraiser shall promptly be jointly instructed by the parties to issue a
certificate to the parties within 20 business days after receipt of such
instructions, setting out its determination of the fair market value,
which determination shall be final and binding on all parties. The Funds
shall pay, and be jointly and severally liable for, one-half of the fees
and expenses of any Appraiser, and the Purchaser shall pay the other
one-half.
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"Lessee" means Sunstone Hotel Properties, Inc. and any other lessee
of any of the Portfolio Hotels or other Properties.
"Lessee 1999 Adjusted Portfolio EBITDA" means the sum of (A) Lessee
1999 Portfolio Revenue minus (B) total expenses of the Lessee (including
rents payable to the Lessor) with respect to the Retained Portfolio Hotels
for the year ending December 31, 1999 excluding interest expense, income
tax expense, depreciation expense, amortization expense, and management
fees (which shall include all fees and other amounts payable to the
Manager), in each case excluding any extraordinary items and determined in
accordance with GAAP applied on a basis consistent with the Lessee's
audited financial statements for the year ended December 31, 1996,
provided that when calculating Lessee 1999 Adjusted Portfolio EBITDA
general and administrative costs of the Lessee will be allocated between
the Retained Portfolio Hotels and all other hotel properties of the Lessee
pro rata based on the weighted average number of guest rooms at the
relevant hotels during calendar year 1999.
"Lessee 1999 Portfolio Revenue" means the total revenue of Lessee
with respect to the Retained Portfolio Hotels for the year ending December
31, 1999, determined in accordance with GAAP applied on a basis consistent
with the Lessee's audited financial statements for the year ended December
31, 1996.
"March Qualifying Project" means a Qualifying Project that is
completed in full on or prior to March 31, 1998.
"Manager" means Sunstone Hotel Management, Inc. or any successor
manager.
"1999 Capital Expenditure Reserve" means the product of (A) 0.04
multiplied by (B) 1999 Room Revenues.
"1999 EBITDA" means (i) the aggregate EBITDA (as defined above) for
the year ending December 31, 1999 for all of the Retained Portfolio
Hotels, plus (ii) the earnings before interest, taxes, depreciation and
amortization of the Purchaser, its Subsidiaries and Investment Entities
during 1999 arising from all of the following assets or other rights
owned, possessed or otherwise held by the Company, its Subsidiaries and
its Investment Entities immediately prior to the Closing: (A) all interest
accrued under the mortgage notes owned on the date hereof (net of any
deficiency funding or equity contribution by the Purchaser into any
partnership or limited liability company that owns the Portfolio Hotel
relating to the applicable Mortgage Note) and (B) the laundry business,
sewer plant and other assets and other rights owned by the Company, its
Subsidiaries and its Investment Entities immediately prior to the Closing,
plus (iii) the amount of Excess Lessee Adjusted EBITDA, if any. In the
event any Portfolio Hotel or other assets are the subject of an Asset Sale
or Condemnation, then the revenues attributable to such Portfolio Hotel or
other asset shall only be included for the period of time during calendar
year 1999 during which Purchaser or its Subsidiaries owned such Portfolio
Hotel or assets.
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"1999 Room Revenues" means the aggregate Room Revenues for the year
ending December 31, 1999 for all of the Retained Portfolio Hotels.
"1997/1998 Room Revenues" means the aggregate Room Revenues for the
period beginning on the Closing Date and ending on December 31, 1998 for
all of the Portfolio Hotels (whether or not such Portfolio Hotels are
Retained Hotels, provided that for any Portfolio Hotel that is disposed of
in an Asset Sale that closes prior to December 31, 1998, Room Revenues
shall be measured only for the period prior to the closing of such Asset
Sale).
"Other Revenues" means, with respect to any Portfolio Hotel, any and
all revenues generated by or at such Portfolio Hotel, including, without
limitation, by vending machines, honor bar, movie rental, telephone,
concessions and similar services.
"Portfolio Hotels" means each of the hotels set forth on Schedule
2.1(c), together with all Real Property relating thereto.
"Qualifying Project" means any capital expenditure project
capitalized in accordance with GAAP by the Purchaser or its Subsidiaries
at any Portfolio Hotel (regardless of whether such Portfolio Hotel is a
Retained Portfolio Hotel) including, without limitation, renovations,
expansions and other physical plant upgrades, provided that recurring or
maintenance capital expenditures will be a Qualifying Project only to the
extent they are undertaken in the ordinary course of business at the usual
time therefore.
"Retained Portfolio Hotels" means each of the Portfolio Hotels that
have not been disposed of pursuant to an Asset Sale that closes on or
prior to December 31, 1999.
"RevPar Index" means the "Star Report" for the relevant period
prepared by Xxxxx Travel Research for the competitive market area used by
the Lessee for its own marketing purposes in which the Portfolio Hotels
that is the subject of an adjustment in EBITDA is located.
"Room Revenues" means, with respect to any period and for any
Portfolio Hotel, gross revenue of the Lessee of the relevant Portfolio
Hotel from the rental of guest rooms, whether to individuals, groups or
transients, at the relevant Portfolio Hotel, excluding the following: (A)
the amount of all credits, rebates or refunds to customers, guests or
patrons; (B) all sales taxes or any other taxes imposed in the rental of
such guests rooms; and (C) Other Revenues. Room Revenues shall be
determined in a manner consistent with the past practice of the Existing
Leases; provided, however, that Room Revenues shall not include any
revenues of the Lessee from the Xxxxxxx Xxxx Xxxxx xx Xxxx Xxxx, Xxxx
relating to the management or operation of any condominiums associated
with such hotel.
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"Sale Proceeds" means, with respect to any Asset Sale, an amount
equal to the sum of (A) the cash consideration minus all of the
Purchaser's or its Subsidiaries' or the Lessee's out of pocket costs
incurred in such Asset Sale plus the Fair Market Value of any non-cash
consideration received by the Company, any of its Subsidiaries or its
Investment Entities, plus (B) the outstanding principal amount of any
indebtedness directly or indirectly assumed by the purchaser or transferee
in such Asset Sale (including, without limitation, the outstanding
principal amount of any indebtedness or other liabilities of any
Subsidiary or Investment Entity that is sold or transferred in any Asset
Sale), plus (C) the Fair Market Value of any other liabilities directly or
indirectly assumed by the purchaser or transferee in such Asset Sale
(including, without limitation, the Fair Market Value of any other
liabilities of any Subsidiary or Investment Entity that is sold or
transferred in any Asset Sale).
"September Qualifying Project" means a Qualifying Project (other
than a March Qualifying Project or December Qualifying Project) that is
Completed in Full on or prior to September 30, 1998.
(f) Covenants of Purchaser. The Purchaser covenants and agrees with
the Funds as follows:
(i) The Purchaser, the Purchaser's Subsidiaries, the Lessee
and, to the extent within the Purchaser's control, the Purchaser's Investment
Entities will afford the officers, employees, auditors and other agents of the
Funds and their general partner reasonable access during normal business hours
to their respective officers,employees, Retained Portfolio Hotels and other
assets owned by the Company and its Subsidiaries at the Closing and to their
respective contracts, commitments, books and records as the Funds or its general
partner, through their officers, employees or agents may from time to time
reasonably request in order to verify any information required to calculate the
Earn-Out Payment.
(ii) The lease agreements entered into by the Purchaser or its
Subsidiaries with the Lessee with respect to each Portfolio Hotel will have a
term of at least five years and will provide for the payment of annual rent
determined by a formula that is the same for 1999 as for prior and subsequent
years (other than for adjustments based on changes in the consumer price index
or any other formula measuring general changes in prices).
(iii) All transactions between the Lessee and any Affiliate of
the Lessee (other than the Purchaser and its Subsidiaries and Investment
Entities) which affect Lessee 1999 Adjusted Portfolio EBITDA shall be on arm's
length terms at least as favorable to the Lessee as would be obtained with a
non-affiliated third party. If the Lessee enters into any such Affiliate
transactions that are on less favorable terms to the Lessee, Lessee 1999
Adjusted Portfolio EBITDA will be appropriately adjusted to reflect the amount
that would result if the preceding sentence had been complied with.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Funds. The Funds
hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
(a) Organization and Qualification of the Company; Subsidiaries. The
Company, each of its Subsidiaries and its Investment Entities (as defined below)
is a Person duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation and has the requisite corporate or
partnership power and authority to own, lease and operate its Properties and
assets and to carry on its business as it is now being conducted. The Company,
each of its Subsidiaries and its Investment Entities is duly qualified or
licensed as a foreign corporation or partnership to do business, and is in good
standing, in each jurisdiction where the character of the Properties and assets
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which would not reasonably be
expected to result in a material liability. Except as set forth on Schedule
3.1(a), the Company has heretofore made available to the Purchaser a true,
correct and complete copy of the stock ledger, minute book, the Articles of
Incorporation and the By-Laws of the Company, and each corporate Subsidiary of
the Company and either the partnership, operating or joint venture agreement, as
applicable, of each Subsidiary and of each Investment Entity of the Company that
is not a corporation, as applicable, each as amended to date and as currently in
effect. Except as set forth on Schedule 3.1(a), the books of account, minute
books, stock record books and other records of the Company and its Subsidiaries
and, to the knowledge of the Company, its Investment Entities, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices, including the maintenance of an adequate system of
internal controls. Except as set forth on Schedule 3.1(a), the minute books of
the Company and its Subsidiaries contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Company and its
Subsidiaries, or applicable, and no meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Company or its Subsidiaries.
(b) Corporate Organization of the Funds. Each Fund is a limited
partnership duly organized and validly existing under the laws of the state of
its formation and has the requisite partnership power and authority to own,
lease and operate its properties and to carry on its business as is now being
conducted, except where the failure to have such power and authority would not
reasonably be expected to have a material adverse effect on the ability of such
Fund to perform its obligations hereunder or under the Registration Rights
Agreement. The Funds have heretofore delivered to Purchaser the names and
percentage ownership interest of each of their partners.
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(c) Capitalization. (i) The authorized capital stock of the Company
consists of 1,000 shares of Company Common Stock. As of the date hereof there
are, and as of the Closing Date there will be, 100 shares of Company Common
Stock issued and outstanding, all of which are and will be validly issued, fully
paid and nonassessable and were issued free of preemptive rights. All of the
outstanding Company Common Stock is owned of record and beneficially by the
Funds on the date hereof and will be owned of record and beneficially by the
Funds on the Closing Date. Schedule 3.1(c)(i) provides a list of the
Subsidiaries of the Company and other entities in which the Company holds,
directly or indirectly, an equity interest (those entities in which the Company
has an equity interest but which do not constitute Subsidiaries are hereinafter
referred to as the "Investment Entities") and, as to each such Subsidiary which
is not wholly owned by the Company and each Investment Entity the identity and
percent record ownership of third parties as of the date hereof, the percentage
of capital stock or other equity interests owned by the Company, directly or
indirectly, in such Subsidiaries or Investment Entities and the percentage of
capital stock or other equity interests owned by Affiliates of the Company or
the Funds. Except as set forth in Schedule 3.1(c)(i), each of the outstanding
shares of capital stock of each of the Company's corporate Subsidiaries and
Investment Entities directly or indirectly owned by the Company is duly
authorized, validly issued, fully paid and nonassessable. Except as set forth in
Schedule 3.1(c)(i), the Company does not own, directly or indirectly, less than
a 50% equity interest in any Person.
(ii) Except as reflected in Section 3.1(c)(i) or as reflected on
Schedule 3.1(c)(ii), there are outstanding (w) no shares of capital stock or
other equity interests of the Company or any of its Subsidiaries or Investment
Entities, (x) no securities of the Company or any of its Subsidiaries or
Investment Entities convertible into or exchangeable or exercisable for shares
of capital stock or other equity interests of the Company or any of its
Subsidiaries or Investment Entities, (y) no options, warrants or other rights,
agreements, arrangements or commitments pursuant to which the Company or any of
its Subsidiaries or Investment Entities is obligated to issue, any capital
stock, other equity interests or securities convertible into or exchangeable or
exercisable for capital stock of or other equity interests of the Company or any
of its Subsidiaries or its Investment Entities, and (z) except pursuant to
agreements listed on Schedule 3.1(c)(ii), no equity equivalents or other similar
rights, options or warrants, or other rights, agreements, arrangements or
commitments pursuant to which the Company or any of its Subsidiaries or
Investment Entities is obligated to issue any such equity equivalents or such
interests (collectively referred to for purposes of this Section 3.1(c) as
"Company Securities"). Except as set forth above, or as set forth on Schedule
3.1(c)(ii), there are no outstanding obligations of the Company or any of its
Subsidiaries or, to the knowledge of the Company, Investment Entities to
repurchase, redeem or otherwise acquire any Company Securities and no
subscriptions, agreements or other commitments of any character pursuant to
which the Company or any of its Subsidiaries or, to the knowledge of the
Company, its Investment Entities is or may become obligated to issue Company
Securities or evidencing the right to subscribe for Company Securities. Neither
the Company nor any of its Subsidiaries or Investment Entities has any
authorized or outstanding bonds, debentures, notes or other indebtedness the
holders of which have the right to vote (or convertible or exchangeable into or
exercisable for securities having the right to vote) with the stockholders of
the Company or any
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of its Subsidiaries or Investment Entities on any matter, except for debt owed
by one of the Company's Subsidiaries or Investment Entities to the Company or a
wholly owned Subsidiary thereof and which is disclosed on Schedule 3.1(c)(ii).
(iii) Schedule 3.1(c)(iii) sets forth a true, correct and
complete list of each partnership agreement, joint venture agreement and similar
agreement (together with all supplements, amendments and modifications thereto)
(collectively, the "Partnership Agreements") with respect to each of the
Company's Subsidiaries and its Investment Entities which is a partnership.
Neither the Company nor any of its Subsidiaries nor, to the knowledge of the
Company, any of its Investment Entities is in default of any of its material
obligations under such Partnership Agreement, nor, except as set forth in
Schedule 3.1(c)(iii), is the Company or any of its Subsidiaries or, to the
knowledge of the Company, any of its Investment Entities, party to an action
alleging such default, nor has the Company or any of its Subsidiaries, or, to
the knowledge of the Company, any of its Investment Entities, received written
notice of any such default.
(d) Authority of the Company Relative to Agreement. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement and the consummation by the
Company of such transactions other than such further actions as may be required,
and will be taken, in connection with the matters referred to in Section 1.5.
This Agreement has been validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by the other
parties hereto, constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except at
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(e) Authority of the Funds Relative to Agreements. Each Fund has all
necessary partnership power and authority to execute and deliver this Agreement
and the Registration Rights Agreement, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Registration
Rights Agreement by such Fund, and the consummation by such Fund of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary partnership action on the part of such Fund. This Agreement has been,
and on the Closing Date the Registration Rights Agreement will be, validly
executed and delivered by such Fund and, assuming the due authorization,
execution and delivery hereof by the other parties hereto and thereto,
respectively, this Agreement constitutes, and the Registration Rights Agreement
will constitute, a legal, valid and binding obligation of such Fund, enforceable
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against such Fund in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) or by an implied covenant of good faith and fair
dealing.
(f) Regulatory Approvals for the Company. The execution, delivery
and performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby by the Company do not and will not require any
consent, approval, authorization or permit of, action by, filing with or
notification to, any Governmental Entity except for: (A) applicable filings
pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the expiration or termination of all applicable waiting
periods thereunder; (B) the filing and recordation of the appropriate documents
as required by the Business Corporation Act of the State of Minnesota (the
"MBCA"); (C) to the extent applicable, compliance with the statutory provisions
and regulations relating to real property transfer gains taxes and real property
transfer taxes; (D) such other consents, approvals, authorizations, filings or
notices as are set forth in Schedule 3.1(f); (E) such consents, approvals,
authorizations, permits, actions, filings or notifications as may be required in
connection with the matters referred to in Section 1.5 and (F) such consents,
approvals, authorizations, permits, actions, filings or notifications which
failure to make or obtain would not singly or in the aggregate reasonably be
expected to have a Company Material Adverse Effect.
(g) Regulatory Approvals for the Funds. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by each Fund
and the consummation of the transactions contemplated hereby and thereby by each
Fund do not and will not require any consent, approval, authorization or permit
of, action by, filing with or notification to, any Governmental Entity except
for applicable filings pursuant to the HSR Act and filings under the Securities
Exchange Act of 1934, as amended, with respect to the Stock Purchase
Consideration.
(h) No Conflicts - Company. Except as disclosed on Schedule 3.1(h),
the execution, delivery and performance of this Agreement by the Company and the
Funds do not and will not: (A) assuming that all consents, approvals and
authorizations contemplated by Section 3.1(f) have been obtained and all filings
described in Section 3.1(f) have been made, conflict with or violate any
Governmental Regulation applicable to the Company or any of its Subsidiaries or
Investment Entities or by which its or any of their respective Properties or
assets are bound; (B) assuming that all consents, approvals and authorizations
under the agreements listed on Schedule 3.1(f) have been obtained and all
filings described in Section 3.1(f) have been made, result in any breach or
violation of or constitute a default under, or give rise to any right of first
refusal, termination, amendment, acceleration or cancellation of, result in a
loss or reduction of rights under, or result in the creation of a Lien on any of
the Properties or assets of the Company or any of its Subsidiaries or Investment
Entities pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its Subsidiaries or, to the knowledge of the Company,
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any of its Investment Entities is a party or by which the Company or any of its
Subsidiaries or, to the knowledge of the Company, any of its Investment Entities
or its or any of their respective material Properties or assets are bound or are
subject; (C) conflict with or violate the Articles of Incorporation or By-Laws
of the Company; or (D) conflict with or violate any partnership or joint venture
agreement or articles of incorporation or bylaws, as the case may be, of any of
the Company's Subsidiaries or Investment Entities, except, in the case of clause
(A), (B) or (D), for any such conflicts, violations, breaches, defaults or other
occurrences which (x) individually or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect or (y) arise in connection
with the matters referred to in Section 1.5.
(i) No Conflicts - Funds. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by each Fund do not and
will not: (A) conflict with or violate the Partnership Agreement of each Fund,
(B) assuming that all consents, approvals and authorizations contemplated by
Section 3.1(g) above have been obtained and all filings described in such
Section have been made, conflict with or violate any Governmental Regulation
applicable to each Fund or by which any it or its respective properties are
bound or (C) result in any breach or violation of or constitute a default, or
give rise to any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a Lien or encumbrance on any of the property or
assets of each Fund pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which each Fund is a party or by which each Fund is bound.
(j) Financial Statements. (i) The Funds have previously delivered to
the Purchaser the audited consolidated balance sheets of the Company as at
December 31, 1994, 1995 and 1996 and the related audited consolidated statements
of income and changes in cash flows for the years then ended (collectively, the
"Company Audited Financial Statements"). The Company Audited Financial
Statements have been prepared in accordance with GAAP, applied on a consistent
basis (except as may be indicated in the notes thereto) and fairly present in
all material respects the consolidated financial position of the Company and its
consolidated subsidiaries at the respective dates thereof and the consolidated
results of their operations and changes in cash flows for the period indicated.
(ii) The Funds have previously delivered to the Purchaser the
unaudited consolidated balance sheet of the Company as at June 30, 1997 and the
related unaudited consolidated statements of income and changes in cash flows
for the three-month period then ended (collectively, the "Company Unaudited
Financial Statements"). The Company Unaudited Financial Statements were prepared
in a manner consistent with that employed in the Company Audited Financial
Statements. The Company Unaudited Financial Statements do not contain full
footnote disclosures in accordance with GAAP and are subject to normal year-end
adjustments, but otherwise fairly present in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
as at June 30, 1997 and the consolidated results of their operations and changes
in cash flows for the period indicated.
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(iii) Except as set forth on Schedule 3.1(j)(iii) and except as
and to the extent disclosed in the consolidated balance sheet of the Company as
at December 31, 1996 previously furnished to the Purchaser, there are no
liabilities, whether absolute, accrued, contingent or otherwise, of the Company
or any of its Subsidiaries, that would be required to be reflected on, or
reserved against, in a consolidated balance sheet of the Company in accordance
with GAAP, except for (x) liabilities which, singly or in the aggregate, are
immaterial in amount or nature, and (y) liabilities incurred subsequent to the
date of such financial statement by the Company, its Subsidiaries or its
Investment Entities in the ordinary course of business consistent with past
practice or in connection with the matters referred to in Section 1.5 or the
Stock Purchase.
(k) Absence of Certain Changes or Events. Except as disclosed on
Schedule 3.1(k) and except for transactions contemplated by this Agreement to
occur between the date hereof and the Closing, since June 30, 1997, the Company
and its Subsidiaries and, to the knowledge of the Company, its Investment
Entities has conducted its business in all material respects only in the
ordinary course, consistent with past practice. Except as disclosed on Schedule
3.1(k), since June 30, 1997 there has not been prior to the date hereof, (x) any
material adverse change in the business, results of operations, financial
condition or prospects (based on the conduct of the Company's, its Subsidiaries'
and its Investment Entities' business as currently conducted) of the Company and
its Subsidiaries taken as a whole or, to the knowledge of the Company, the
Investment Entities taken as a whole with the Company and its Subsidiaries other
than changes arising out of or relating to general economic conditions or other
factors affecting the hotel industry generally where the Company and its
Subsidiaries and Investment Entities operate, (y) any material change in any
accounting principles, method or practice used by it or any change in the
classification of assets, recognition of income or expenses or the depreciation
or amortization policies or rates therefore applied (unless required by the
Financial Accounting Standards Board ("FASB")), or (z) except in the ordinary
course of business consistent with past practice any actual or, to the knowledge
of the Company, threatened, material damage, material destruction, material
loss, conversion, condemnation or taking by eminent domain related to any
material asset or Property of the Company, its Subsidiaries or, to the knowledge
of the Company, its Investment Entities (including each of the Property Owners),
nor are any proceedings pending with respect to the same. In addition, except as
disclosed on Schedule 3.1(k), from June 30, 1997 (April 30, 1997 in the case of
(C) below) to the date hereof, neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company, its Investment Entities has (A) issued,
sold or delivered or agreed to issue, sell or deliver any additional shares of
their capital stock, partnership, joint venture or other equity interests
(collectively, "Ownership Interests"), or any options, warrants or rights to
acquire any Ownership Interests, or securities convertible into or exchangeable
for Ownership Interests, other than to the Company or its wholly owned
Subsidiaries; (B) acquired or disposed of any material assets or material
Properties or agreed to manage or operate any material asset or material
Property, or entered into any agreement or other arrangement for any such
acquisition, disposition, management or operation, except in each case in the
ordinary course of business consistent with past practice; (C) declared, made,
paid or set apart any sum for any dividend or other distribution to its
shareholders, partners or co-venturers (other than to the Company and its wholly
owned Subsidiaries and other than the Distribution), or purchased or redeemed
any of its Ownership Interests or reclassified any of its Ownership
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Interests; (D) except to the minimum extent required under existing Company
Plans, increased or accelerated the wages, salaries, compensation, pension or
other benefits payable to any employee, or granted any severance or termination
pay, except to employees who are not executive officers or directors in
accordance with its past business practice, or entered into any employment
agreement with any officer or salaried employee which is not terminable by the
employer, without cause and without severance or termination payments, upon
notice of 30 days or less, or established, adopted, entered into or amended or
terminated any Company Plan or other Material Contract listed on Schedule
3.1(m)(B); (E) relinquished, forgiven or canceled any material debts or claims
(except with respect to transient hotel guests in the ordinary course of
business consistent with past practice) or waived any rights of material value;
(F) suffered any strike or other material labor trouble; (G) made or prepaid any
material investment, loan or other extension of credit (other than working
capital borrowings) or entered into any commitment or agreement to make or
prepay any material investments, loans or extensions of credit (other than
working capital borrowings) to any entity, other than a wholly owned Subsidiary
of the Company; (H) issued any indemnity, guaranty, "keep well" agreement or
similar assurances of performance for any other entity, other than a wholly
owned Subsidiary, with respect to which the contingent liability exceeds
$100,000 per agreement and $500,000 in the aggregate; (I) amended its
organizational documents or altered, through merger, liquidation,
reorganization, restructuring or any other fashion the entity structure or the
Company's direct or indirect Ownership Interests in any entity; or (J) made any
material Tax elections, settled or compromised any material income Tax
liabilities or deferred the payment of any material Taxes that came due. For
each of the severance agreements listed on Schedule 3.1(k)(D) which indicate
that the relevant severance has been paid in full, such severance has been so
paid.
(l) Compliance with Laws.
(i) Except as set forth on Schedule 3.1(l)(i), the
Company, each of its Subsidiaries and, to the knowledge of the Company, each of
the Investment Entities hold all material Licenses and Permits necessary for the
lawful conduct of their respective businesses and the operation and management
of the Properties as currently conducted and all such Licenses and Permits are
valid and in full force and effect.
(ii) The Company, each of its Subsidiaries and, to the
knowledge of the Company, each of the Investment Entities are in compliance in
all material respects with the terms of their respective Licenses and Permits,
and each of the Properties is being operated, leased, managed and used in
accordance in all material respects with the Licenses and Permits.
(iii) The Company, each of its Subsidiaries and, to the
knowledge of the Company, each of the Investment Entities are in compliance in
all material respects with all Government Regulations, excluding the Americans
with Disabilities Act (the "ADA") (as to which no representation or warranty is
made pursuant to this clause (iii)).
(iv) Except as set forth on Schedule 3.1(l)(iv), as of the
date of this Agreement, no investigation, review, inquiry or proceeding by any
Governmental Entity is
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pending or, to the knowledge of the Company, threatened with respect to any
material matter as to which the Company, any of its Subsidiaries or any of its
Investment Entities is a party or subject other than any investigation or
inquiry as to which neither the Company, any Subsidiary nor any Investment
Entity has received notice of the conduct thereof.
(v) Except as set forth on Schedule 3.1(l)(v), as of the
date of this Agreement, (A) neither the Company nor any Subsidiary nor, to the
knowledge of the Company, any Investment Entity, has received any written notice
from any Governmental Entity with respect to noncompliance with the ADA, (B) the
Company has in effect an ADA compliance program for the Company, its
Subsidiaries and the Investment Entities and (C) the Company, its Subsidiaries
and the Investment Entities have taken all commercially reasonable actions to
comply with the ADA.
(m) Agreements.
(i) Schedule 3.1(m) and Schedules 3.1(p)(i) through
3.1(p)(vii) together set forth a true, correct and complete list of all of the
executory contracts and other agreements (together with all supplements,
amendments and modifications thereto) in each of the following categories to
which the Company or any of its Subsidiaries or, to the knowledge of the
Company, any of the Investment Entities is a party or by or to which their
respective assets, properties or businesses are bound or subject as of the date
hereof (the "Material Contracts"):
(A) (x) any agreement, preferential rights or options or rights of
first refusal in each case relating to the acquisition by the Company, any
of its Subsidiaries or, to the knowledge of the Company, its Investment
Entities, of any operating business or the capital stock or other equity
interests of any other Person or relating to the disposition of the
capital stock of the Company, any of its Subsidiaries or, to the knowledge
of the Company, its Investment Entities, or a material amount of its or
their Properties (including grants of any preferential rights or options
or right of first refusal with respect thereto) and (y) any agreement for
the sale or exchange of assets that provides for payments in excess of
$100,000 per annum or $250,000 in the aggregate per agreement;
(B) all Company Plans (as defined in Section 3.1(p)) for the benefit
of, or relating to, any employee, director, former employee, former
director or retiree of the Company, any of the Company's Subsidiaries or
any of its Investment Entities;
(C) all employment, consulting, severance, or any similar agreement,
arrangement or contract related to employment or personal services with
Persons who are not officers, directors or employees of the Company having
a remaining term of one year or more, not terminable by the Company or any
Subsidiary without penalty on 90 days or less notice and involving
payments in excess of $50,000;
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(D) all collective bargaining or similar arrangements with any labor
union;
(E) all contracts or agreements to indemnify any officers or
directors of the Company, its Subsidiaries or, to the knowledge of the
Company, its Investment Entities;
(F) except for Partnership Agreements and agreements listed on
Schedule 3.1(c)(iii), all agreements of surety, guarantee, reimbursement,
indemnity, "keep well" or agreements to advance funds, letters of credit,
bid bond, temporary performance bond or indemnification or similar
assurances of performance with respect to which the Company or any of its
subsidiaries or, to the knowledge of the Company, any of the Investment
Entities, is the obligor or beneficiary, with respect to which the
contingent liability exceeds $100,000 (excluding any such arrangement
between the Company and its wholly owned Subsidiaries);
(G) except for documents relating to indebtedness not exceeding
$10,000 in any single instrument and $100,000 for all such instruments,
all indentures, loan agreements, promissory notes, agreements pledging,
mortgaging or otherwise granting a security interest in collateral or
guarantees under which the Company or any of its Subsidiaries or, to the
knowledge of the Company, its Investment Entities has outstanding
indebtedness (including Existing Indebtedness), obligations or
liabilities, contingent or otherwise, for borrowed money or under which
any Person (including the Company, any of its Subsidiaries or, to the
knowledge of the Company, any of the Investment Entities) has outstanding
indebtedness, obligations or liabilities, contingent or otherwise, for
borrowed money with the Company, any of its Subsidiaries or, to the
knowledge of the Company, any of the Investment Entities (set forth in
Schedule 3.1(m)(i)(G) is a list by Property of the Existing Indebtedness,
which identifies the borrower, creditor, outstanding principal balance as
of June 29, 1997, maturity date and interest rate with respect to each
Existing Loan, and specifying whether such Existing Loan is non-recourse);
(H) excluding group reservations for transient hotel guests, all
material Property Contracts and, to the knowledge of the Company, all
proposed material Property Contracts being negotiated;
(I) all Ground Leases and material Space Leases;
(J) all commitments to make capital expenditures, capital additions
or capital improvements (including, without limitations, tenant
improvements) not reflected in the Capital Expenditure Budget and
involving an expenditure in excess of $100,000;
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(K) all agreements (other than Franchise Agreements, Partnership
Agreements, REAs and Ground Leases) which limit in any material respect
the right of the Company or any of its Subsidiaries or, to the knowledge
of the Company, any of the Investment Entities to engage in any business
(including without limitation, the ownership, operation or sale of
hotels); and
(L) any agreements or contracts (of the types not covered by clauses
(A) through (J) above and except for Permitted Liens), which are material
to the business, operations, Properties, assets or results of operations
of the Company and its Subsidiaries taken as a whole and which are not
terminable by the Company without penalty on 90 days' notice or less.
(ii) The Company has made available to the Purchaser true,
correct and complete copies of the Material Contracts, except for the
indemnification agreements identified as numbers 5, 6 and 18 on Schedule
3.1(k)(E), which the Company represents are the same in form and substance as
the other indemnification agreements identified on such Schedule. Each of the
Material Contracts is valid and binding, in full force and effect. Except as set
forth on Schedule 3.1(m)(ii), neither the Company nor any of its Subsidiaries
or, to the knowledge of the Company, its Investment Entities; (x) is in material
breach or default under any Material Contract; (y) has received any written
notice of default, acceleration, cancellation or termination (or any other
written notice with like or similar effect) under any Material Contract; or (z)
has any knowledge of any default or fact which would, to the knowledge of the
Company, with the giving of notice or passage of time or both, constitute a
material default by the Company, its Subsidiaries or its Investment Entities
under any Material Contract, and the Company has no knowledge that any other
party to any Material Contract is in material breach or default thereof.
(iii) The Company has made available to the Purchaser true,
correct and complete copies of all material agreements governing transactions
that have been consummated during the five years preceding the date of this
Agreement that have involved (i) the sale of capital stock of any of the
Subsidiaries or merger of any of the Subsidiaries with and into another entity
(each, a "Corporate Sale") and (ii) the acquisition by the Company or any of the
Subsidiaries of the capital stock of another entity or merger of another entity
with and into the Company or any of the Subsidiaries (each, a "Corporate
Acquisition"). During the five years preceding the date of this Agreement, the
only Corporate Sale was the sale of all of the capital stock of Xxxxxxxx'x
Formal Wear, Inc. ("Xxxxxxxx'x") to Frana and Associates, Inc. on June 30, 1997
pursuant to that certain Stock Purchase Agreement dated April 4, 1997, and the
only Corporate Acquisition was the acquisition through July 31, 1997 of
approximately 98% of the common stock of GMX Corporation pursuant to that
certain Offer to Purchase and related Letter of Transmittal dated December 20,
1996. On the date the Corporate Sale of Xxxxxxxx'x was consummated Xxxxxxxx'x
was not obligated to guarantee any indebtedness and had no other guarantees,
except guarantees in the ordinary course of business to purchase clothing from
suppliers, and, to the best knowledge of the Company, nothing had occurred prior
to the date of the consummation of such Corporate Sale that would give rise to
material liabilities on the part
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of the Company or any of its Subsidiaries to the purchaser of Xxxxxxxx'x for the
violation of Environmental Laws.
(n) Permitted Liens. The Company, the Subsidiaries and, to the
knowledge of the Company, each of its Investment Entities and each Property is
in compliance in all material respects with the terms of Permitted Liens
applicable to it except to the extent non-compliance would not, individually or
in the aggregate, reasonably be expected to result in any material liability or
disrupt the business of the Company as currently operated.
(o) Absence of Litigation. Except as disclosed on Schedule 3.1(o) or
the financial statements or the notes thereto delivered to the Purchaser
pursuant to Sections 3.1(j)(ii) as of the date hereof, there are no suits,
claims, actions, proceedings or, to the knowledge of the Company, investigations
pending or threatened against the Company, or any of the Subsidiaries or any of
its Investment Entities or any of their Properties or rights before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign, other than ordinary course claims of the type adequately
insured against (subject to self-insured retentions and deductibles) by the
Company, its Subsidiaries and, to the knowledge of the Company, its Investment
Entities. Neither the Company nor any of its Subsidiaries or, to the knowledge
of the Company, any of its Investment Entities, nor any of their respective
Properties is or are subject to any material order, writ, judgment, injunction,
decree, determination or award that remains unsatisfied or in effect.
(p) Employee Matters. (i) Schedule 3.1(p)(i) lists each "employee
benefit plan" (within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and any other bonus, stock
option, stock purchase, stock appreciation right, incentive, deferred
compensation, supplemental retirement, severance and other similar material
fringe or employee benefit plans, programs, policies or arrangements, any
employment, consulting, indemnification or executive compensation agreements for
the benefit of, or relating to, any employee, former employee or retiree of the
Company, currently maintained by the Company or under which the Company has any
liability in respect of current or former employees (collectively referred to as
the "Company Plans"). True, correct and complete copies of the following have
been made available to the Purchaser: (A) all Company Plans and any trust
agreement or other funding arrangement related thereto; (B) the most recent
annual report (Form 5500 Series) with respect to each Company Plan; (C) the most
recent summary plan description (as described in section 102(a)(1) of ERISA);
and (D) the most recent actuarial report of each Title IV Plan (as defined in
Section 3.1(p)(v) below)).
(ii) Each Company Plan has been administered in compliance
with ERISA, the Code, the terms of such Company Plan and all laws, rules and
regulations applicable thereto, except where the failure to do so would not
reasonably be expected to result in a material liability.
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(iii) The Company is not required to contribute to, and
has not been required within the preceding six years to contribute to, any
"multiemployer plan" (within the meaning of section 3(37) of ERISA).
(iv) Each Company Plan which is intended to be qualified
within the meaning of Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service ("IRS") as to its
qualification, and to the best knowledge of the Company, nothing has occurred
that would reasonably be expected to result in the loss of such status.
(v) Schedule 3.1(p)(v) sets forth each Company Plan (other
than a multiemployer plan) that is subject to Title IV of ERISA (a "Title IV
Plan"). Except as set forth on Schedule 3.1(p)(v), no accumulated funding
deficiency or unpaid required installments within the meaning of section 412 of
the Code exists, nor has there been issued a waiver or variance of the minimum
funding standards imposed by the Code with respect to any Title IV Plan, nor has
any lien been created under section 302(f) of ERISA or security been required
under section 307 of ERISA.
(vi) Except as set forth on Schedule 3.1(p)(vi), no
Company Plan or agreement, program, policy or other arrangement by or to which
the Company is a party, is bound or is otherwise liable, by its terms or in
effect would reasonably be expected to require any payment or transfer of money,
property or other consideration on account of or in connection with the sale,
lease, exchange or transfer of either any shares of stock or any of the assets
of the Company (whether or not any such payment would constitute a "parachute
payment" or "excess parachute payment" within the meaning of Section 280G of the
Code).
(vii) Schedule 3.1(p)(vii) sets forth a list of all
collective bargaining agreements to which the Company, its Subsidiaries or
Investment Entities is a party as of the date hereof and any pending grievances
thereunder. As of the date hereof, no demand for recognition made by any labor
organization is pending with respect to any employees of the Company or its
Subsidiaries. To the knowledge of the Company, the Company has not at any time
during the last two years (a) had, nor 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. As of the date hereof, there are no representation petitions, unfair
labor practice or age discrimination charges or complaints, or other charges or
complaints alleging illegal discriminatory practices by the Company, pending or
to the knowledge of the Company threatened before the National Labor Relations
Board or any other governmental body, which would be reasonably likely to result
in a material liability. The Company has not incurred any liability or
obligation under the Worker Adjustment and Retraining Notification Act or
similar state laws, which remains unpaid or unsatisfied.
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(viii) Except as disclosed in Schedule 3.1(p)(viii), or as
required by Section 4980B of the Code, no Company Plan provides medical or
insurance benefits to current or former employees (or their eligible dependents)
beyond their retirement or other termination of employment.
(ix) To the best knowledge of the Company, with respect to
the Company Plans, no condition or event exists which could reasonably be
expected to subject the Company or any of the Company Plans to any liability
under ERISA, the Code or any other applicable laws (excluding liabilities with
respect to the payment of contributions and premiums in the ordinary course),
except where such liability would not reasonably be expected to have a Company
Material Adverse Effect.
(x) As of the date hereof, the Company has not received
notice of any pending investigations by any governmental agency with respect to
any of the Company Plans that would reasonably be expected to subject the
Company or any of the Company Plans to any liability or expense.
(q) Tax Matters. Except as disclosed in Schedule 3.1(q):
(i) the Company and each of its Subsidiaries and, to the
knowledge of the Company, each of the Investment Entities, and any consolidated,
combined, unitary or aggregate group for Tax (as hereinafter defined) purposes
of which the Company or any of its Subsidiaries and Investment Entities is or
has been a member has timely filed all Tax Returns (as hereinafter defined)
required to be filed by it, has paid all Taxes required to be paid whether or
not shown to be due prior to the date any fine or penalty would be assessed
thereon or has provided adequate reserves in its financial statements for any
Taxes that have not been paid, whether or not shown as being due on any returns.
(ii) (A) No deficiency for any Taxes has been proposed,
asserted or assessed against the Company or its Subsidiaries and, to the
knowledge of the Company, its Investment Entities that has not been resolved and
paid in full, (B) there are no waivers or comparable consents regarding the
application of the statute of limitations with respect to any material Taxes or
Tax Returns of the Company or any of its Subsidiaries and, to the knowledge of
the Company, its Investment Entities and (C) there are no present or proposed
audits, examinations, administrative proceedings or court proceedings with
respect to any Taxes or Tax Returns of the Company or its Subsidiaries and, to
the knowledge of the Company, its the Investment Entities.
(iii) None of the Company or any of its Subsidiaries and,
to the knowledge of the Company, its Investment Entities is a party to or liable
under any material agreement for the allocation, payment or sharing of Taxes.
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(iv) There are no material Liens (other than Permitted
Liens) for Taxes upon the Properties or assets of the Company or any of its
Subsidiaries and, to the knowledge of the Company, its Investment Entities
except for liens for Taxes not yet due and payable.
(v) As used herein, "Taxes" shall mean any federal, state,
local or foreign taxes of any kind, including but not limited to those on or
measured by or referred to as income, gross receipts, 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 entity, domestic or foreign. As
used herein, "Tax Return" shall mean any return, report or statement required to
be filed with any governmental entity with respect to Taxes.
(r) Environmental Matters. Except as set forth in Schedule 3.1(r) or
in the Environmental Reports previously made available to Purchaser and, with
respect to clauses (i) through (iv), except for matters that would not,
individually or in the aggregate, reasonably be expected to result in material
liability (other than, for purposes of clauses (iii) and (iv), expenses incurred
for ordinary course maintenance and disposal practices consistent with past
practices and liabilities that could result in connection with renovation or
demolition of any Property or portion thereof):
(i) The operations of the Real Property, the Company, its
Subsidiaries and, to the knowledge of the Company, its Investment Entities are
in compliance with applicable Environmental Laws;
(ii) The Company, its Subsidiaries and the Investment
Entities and the Properties are in compliance with the terms of their Licenses
and Permits required under applicable Environmental Laws;
(iii) There has been no Release and Hazardous Materials
are not present at any parcel of Real Property (whether currently or previously
owned or operated by the Company, its Subsidiaries, or its Investment Entities);
(iv) No friable asbestos is present in any of the
properties; and
(v) (A) No Environmental Claims are pending against the
Company or any of its Subsidiaries or their Properties or, to the knowledge of
the Company, any Investment Entity or any of its Properties, (B) neither the
Company, its Subsidiaries, nor to the knowledge of the Company, any of the
Investment Entities has knowledge or written notice of any threatened
Environmental Claim against the Company, its Subsidiaries, the Investment
Entities or the Real Property, and (C) no order, judgement or decree providing
for a remedial obligation has been imposed on the Company, any of its
Subsidiaries or any of their Properties
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and, to the knowledge of the Company, any of the Investment Entities or any of
the Real Property under any applicable Environmental Law.
(s) Properties.
(i) Each Property Owner (a true, correct and complete list
of which is set forth on Schedule 3.1(s)(i)) has (A) good and marketable fee
simple title to the Real Property owned by such Property Owner, free and clear
of all Liens other than the Permitted Liens applicable to it, and (B) good and
marketable leasehold title to the Real Property leased by such Property Owner,
free and clear of all Liens other than the Permitted Liens applicable to it.
(ii) Except as set forth on Schedule 3.1(s)(ii), as the
date hereof, neither the Company nor any Property Owner has knowledge of, nor
has it received any notice of, any non-recurring or special taxes or assessments
or any planned public improvements that may result in a non-recurring or special
tax or assessment with respect to the Company, its Subsidiaries, its Investment
Entities or the Properties.
(iii) The Company, its Subsidiaries or its Investment
Entities has (A) good title to all of the Personal Property owned by such
Person, free and clear of all Liens other than Permitted Liens applicable to it
and (B) a valid leasehold interest to all Personal Property leased by such
Person, free and clear of all Liens other than Permitted Liens applicable to it.
Each parcel of Real Property which is a hotel contains all levels of Personal
Property and inventories of supplies necessary to operate such hotel in the
ordinary course of business, consistent with past practice.
(iv) The lessee under each Ground Lease and under each
Space Lease (where the Company, or any of its Subsidiaries or its Investment
Entities is lessee) is in peaceful and quiet possession of the Property demised
thereunder.
(v) As of the date hereof, neither the Company, nor any of
its Subsidiaries or any of its Investment Entities has knowledge of any change
or proposed change in the route, grade or width of, or otherwise affecting, any
street, creek or road adjacent to or serving any parcel of Real Property. Within
the period of eighteen (18) months prior to the date hereof, no portion of any
of the Properties has suffered any material damage or had its operation
curtailed in any material respect by fire, flood or other casualty which has not
heretofore been repaired and restored to its original or better condition and
paid or provided for, all in accordance with all applicable Governmental
Regulations.
(vi) All utilities required for the operation of each
parcel of Real Property either enter such Real Property through adjoining
streets, or they pass through adjoining land, do so in accordance with valid
public easements or irrevocable private easements, and all of said utilities are
installed and operating.
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(vii) Except as set forth on Schedule 3.1(s)(vii), the
present zoning (including, by means of special variances of record) of each
parcel of Real Property permits the current use thereof (excluding isolated
instances of non-compliance which are immaterial in nature). Neither the
Company, its Subsidiaries, nor, to the knowledge of the Company, any of the
Investment Entities, has knowledge of any fact, proceeding or threatened action
or proceeding which could materially adversely affect the present zoning of any
parcel of Real Property.
(viii) There are no (A) unrecorded easements which are not
shown on the Surveys, (B) strips or gores with respect to or affecting any
parcel of Real Property (or portion thereof) which cause any related parcels of
Land to be non-contiguous or (C) encroachments either by the Improvements on any
property owned by others or by any improvement owned by others on any parcel of
the Real Property (other than encroachments which are immaterial in nature).
Each parcel of Real Property has a right to access to and from such parcel of
Real Property.
(ix) Schedule 3.1(s)(ix) contains (A) a true, correct and
complete list of all Title Insurance Policies, each of which is in full force
and effect and (B) a list of all Title Reports previously delivered to the
Purchaser or the Purchaser covering those Real Properties not insured by Title
Insurance Policies.
(t) Condition of Improvements. Except as disclosed on Schedule
3.1(t) or in the Report of Xxxxxxxx and Xxxxxxx previously provided to
Purchaser, the Improvements are in a good state of condition, normal wear and
tear excepted, except where the failure to be in such condition would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(u) Insurance. Schedule 3.1(u) contains an accurate and complete
list of all material policies of insurance (other than Title Insurance
Policies), including the amounts thereof and all deductibles, maintained by the
Company, each of its Subsidiaries and, to the knowledge of the Company, its
Investment Entities with respect to its business, employees, Properties and
assets. To the knowledge of the Company, except for such matters that,
individually or in the aggregate, would not reasonably be expected to result in
a material liability, each such policy is in full force and effect and, assuming
consummation of the transactions contemplated hereby, is free from any right of
termination on the part of the insurance carriers. To the knowledge of the
Company no notice of cancellation of any such policy has been received by the
Company or the relevant Subsidiary or Investment Entity. Except as set forth on
Schedule 3.1(u), there are no outstanding requirements or written
recommendations by any insurance company that issued a policy with respect to
any of the Properties and assets of the Company, any of its Subsidiaries or the
Investment Entities or by any Board of Fire Underwriters or other body
exercising similar functions or by any Governmental Entity requiring or
recommending any material repairs or other material work to be done on or with
respect to any of the Properties and assets of the Company, any of its
Subsidiaries or, to the knowledge of the Company, its the Investment Entities,
or requiring or recommending any material equipment or facilities to be
installed on or in
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connection with any of the Properties or assets of the Company, any of its
Subsidiaries or, to the knowledge of the Company, its Investment Entities.
(v) Transactions with Affiliates. Other than matters referred to in
Schedule 3.1(v) and transactions among any of the Company and its Subsidiaries
and Investment Entities, there are no material contracts, agreements or
transactions between the Company, any of its Subsidiaries or its Investment
Entities, on the one hand, and the Funds or any Affiliate of the Funds, on the
other.
(w) Investment Intention. Each Fund is acquiring its portion of the
Purchaser Common Stock Consideration and the Purchaser Convertible Preferred
Stock Consideration solely for its own account for the purpose of investment and
not with a view to or for sale in connection with any distribution thereof.
(x) Ability to Bear Risk. The financial situation of each Fund is
such that it can afford to bear the economic risk of holding the unregistered
shares of Purchaser Common Stock and Purchaser Convertible Preferred Stock for
an indefinite period and such Fund can afford to suffer the complete loss of its
investment in the Purchaser Common Stock Consideration and the Purchaser
Convertible Preferred Stock Consideration.
(y) Access to Information; Evaluation of Risks. (i) Each Fund has
had access to and/or has received and carefully reviewed information (including,
without limitation, financial information) regarding the Purchaser and the
shares of Purchaser Common Stock and Purchaser Convertible Preferred Stock and
has been granted the opportunity to ask questions of, and receive answers and
request information from, representatives of the Purchaser concerning the terms
and conditions of the acquisition of the Purchaser Common Stock Consideration
and the Purchaser Convertible Preferred Stock Consideration and to obtain any
additional information which it deems necessary in connection with its decision
to acquire the Purchaser Common Stock Consideration and the Purchaser
Convertible Preferred Stock Consideration and (ii) its knowledge and experience
in financial and business matters is such that it is capable of evaluating the
merits and risks of the investment in the Purchaser Common Stock Consideration
and Purchaser Convertible Preferred Stock Consideration.
(z) Shares Not Registered. Each Fund understands and acknowledges
that the shares of Purchaser Common Stock Consideration and the Purchaser
Convertible Preferred Stock Consideration have not been registered under the
Securities Act or any other applicable securities law, and that unless so
registered may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any other
applicable securities law, pursuant to an exemption therefrom or in a
transaction not subject thereto and in each case in compliance with the
conditions for transfer set forth in Section 4.13 below.
(aa) Status of Fund. Each Fund is an "accredited investor" as
defined under the Securities Act.
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(ab) Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or the Funds.
SECTION 3.2 Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Funds and the Company as
follows:
(a) Corporate Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has the requisite corporate power and authority for such
entity to own, lease and operate its properties and to carry on its business as
it is now being conducted.
Each Subsidiary of the Purchaser is a Person duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation and has the requisite corporate or partnership power and authority to
own, lease and operate its Properties and assets and to carry on its business as
it is now being conducted, except where the failure to be duly organized and in
good standing or to have such power and authority would not, individually or in
the aggregate, reasonably be expected to have a Purchaser Material Adverse
Effect. The Purchaser and each of its Subsidiaries is duly qualified or licensed
as a foreign corporation or partnership to do business, and is in good standing,
in each jurisdiction where the character of the properties and assets owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good stand which would not, individually or in the
aggregate, reasonably be expected to have a Purchaser Material Adverse Effect.
(b) Capitalization. (i) The authorized capital stock of the
Purchaser consists of 50,000,000 shares of Purchaser Common Stock, $.01 par
value and 10,000,000 shares of Preferred Stock, $0.01 par value per share
("Purchaser Preferred Stock"). As of July 29, 1997, (i)(A) 20,386,635 shares of
Purchaser Common Stock were issued and outstanding, all of which were validly
issued, fully paid and nonassessable and were issued free of preemptive rights
and (B) an aggregate of 2,319,811 shares of Purchaser Common Stock were reserved
for issuance and issuable upon or otherwise deliverable in connection with the
Purchaser's dividend reinvestment and stock purchase plan or the exercise of
outstanding options or other rights to acquire shares of Purchaser Common Stock
(other than pursuant to the conversion of or exchange for operating partnership
units of Sunstone Hotel Investors, L.P.). As of the date hereof, no shares of
Purchaser Preferred Stock are issued and outstanding. As of July 29, 1997,
2,562,560 shares of the Purchaser Common Stock were reserved for issuance and/or
issuable upon or otherwise deliverable in connection with the conversion of or
exchange for operating partnership units of Sunstone Hotel Investors, L.P.
(c) Authority Relative to Agreements. The Purchaser has all
necessary power and authority for such entity to execute and deliver this
Agreement and the Registration Rights Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this
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Agreement by the Purchaser, and the consummation by the Purchaser of the
transactions contemplated hereby, have been duly authorized by the Board of
Directors of the Purchaser and no other corporate or other proceedings on the
part of the Purchaser are necessary to authorize this Agreement and the
consummation by the Purchaser of such transactions (including without
limitation, the amendment to the Certificate of Incorporation of the Purchaser
by the Certificate of Designation). The execution, delivery and performance of
the Registration Rights Agreement by the Purchaser and the consummation by the
Purchaser of the transactions contemplated thereby have been duly authorized by
all necessary corporate action by the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and, assuming due authorization,
execution and delivery by the other parties hereto, constitutes a legal, valid
and binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing. On
the Closing Date, the Registration Rights Agreement will be validly executed and
delivered by the Purchaser and, assuming the due authorization, execution and
delivery hereof by the Fund constitute a legal, valid and binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
(d) No Conflict; Required Filings and Consents. (i) The execution,
delivery and performance of this Agreement by the Purchaser do not and will not:
(A) conflict with or violate the Articles of Incorporation or By-Laws of the
Purchaser, (B) assuming that all consents, approvals and authorizations
contemplated by subsection (ii) below have been obtained and all filings
described in such subsection have been made, conflict with or violate any
Governmental Regulation applicable to the Purchaser or any of its Subsidiaries
or by which any of them or their respective properties are bound or (C) assuming
that all consents, approvals and authorizations contemplated by subsection (ii)
below have had been obtained and all filings described in such clause have been
made, result in any breach or violation of or constitute a default, or give rise
to any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien or encumbrance on any of the property or assets
of the Purchaser or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Purchaser or any of its Subsidiaries
is a party or by which the Purchaser or any of its Subsidiaries or any of their
respective properties are bound.
(ii) The execution, delivery and performance of this
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby by the Purchaser do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
Governmental Entity, except for: (A) applicable filings pursuant to the HSR Act
and the expiration or termination of all applicable waiting periods thereunder,
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(B) applicable filings under state securities, takeover or Blue Sky laws, (C)
compliance with the statutory provisions and regulations relating to any Real
Property transfer gains tax or Real Property transfer tax, (D) the filing with
the Securities and Exchange Commission (the "SEC") of applicable filings under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") as may be
required in connection therewith, and (E) such other consents, approvals,
authorizations, permits, actions, filings or notifications the failure of which
to make or obtain would not, individually or in the aggregate, reasonably be
expected to have a Purchaser Material Adverse Effect or arise in connection with
the matters referred to in Section 1.5.
(e) SEC Filings; Financial Statements. (i) The Purchaser has filed
all forms, reports, statements and other documents required to be filed with the
SEC since January 1, 1996 (collectively, the "SEC Reports"). The SEC Reports
(including the Registration Statement on Form S-1, Registration No. 33-84346),
including all the SEC Reports filed after the date of this Agreement and prior
to the Closing Date, were or will be in compliance in all material respects with
the applicable requirements of the Securities Act or the Exchange Act, as
applicable, each as in effect on the date so filed. None of the SEC Reports
filed by the Purchaser, including all the SEC Reports filed after the date of
this Agreement and prior to the Closing Date, contained, or will contain when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(ii) The consolidated financial statements of the Purchaser for
each of the three fiscal years ended December 31, 1994, 1995 and 1996, and for
the three month period ended March 31, 1997 included in SEC Reports comply, and
the financial statements included in all SEC Reports filed after the date of
this Agreement and prior to the Closing Date will comply, as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been or will be
prepared in accordance with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto) and do or will fairly present in all material
respects the consolidated financial position of the Purchaser and its
consolidated Subsidiaries at the respective dates thereof and the consolidated
results of their operations and changes in cash flows for the periods indicated.
(iii) Except as and to the extent disclosed in the consolidated
balance sheet of the Purchaser as at December 31, 1996, and the SEC Reports or
any financial statements or the notes thereto contained in the SEC Reports filed
since such date, there are no liabilities, whether absolute, accrued, contingent
or otherwise, of the Purchaser or any of its Subsidiaries, that would be
required to be reflected on, or reserved against, in a consolidated balance
sheet of the Purchaser in accordance with GAAP, except for (i) liabilities
which, singly or in the aggregate, are immaterial in amount or nature, and (ii)
liabilities incurred subsequent to the date of such financial statement by the
Purchaser or its Subsidiaries in the ordinary course of business consistent with
past practice.
(f) Absence of Certain Changes or Events. Since March 31, 1997, the
Purchaser and its Subsidiaries and, to the knowledge of the Purchaser, its
Investment Entities has
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conducted its business in all material respects only in the ordinary course,
consistent with past practice and except as disclosed in Purchaser's SEC Reports
or any financial statements or the notes thereto contained in the SEC Reports
since March 31, 1997, there has not been prior to the date hereof, (x) any
material adverse change in the business, results of operations, financial
condition or prospects of the Purchaser and its Subsidiaries taken as a whole
or, to the knowledge of the Purchaser, its Investment Entities taken as a whole
with the Purchaser and its Subsidiaries, other than changes arising out of or
relating to general economic conditions or other factors affecting the hotel
industry generally where the Purchaser, its Subsidiaries and its Investment
Entities own hotel properties or (y) except in the ordinary course of business
consistent with past practice and except for such matters that would not
reasonably be expected to have a Purchaser Material Adverse Effect, any actual
or, to the knowledge of the Purchaser, threatened, damage, destruction, loss,
conversion, condemnation or taking by eminent domain related to any material
asset or Property of the Purchaser, its Subsidiaries or, to the knowledge of the
Purchaser, its Investment Entities, nor are any proceedings pending with respect
to the same.
(g) Absence of Litigation. Except as disclosed in the SEC Reports
filed with the SEC prior to the date hereof or the financial statements or the
notes thereto contained in the SEC Reports filed with the SEC prior to the date
hereof, and except as would not, individually or in the aggregate, reasonably be
expected to result in a Purchaser Material Adverse Effect, as of the date
hereof, there are no suits, claims, actions, proceedings or investigations
pending or, to the knowledge of the Purchaser, threatened against the Purchaser
or any of its Subsidiaries or, to the knowledge of the Purchaser, any of its
Investment Entities or any Properties or rights of the Purchaser or any of its
Subsidiaries or, to the knowledge of the Purchaser, any of its Investment
Entities, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, other than ordinary course
claims of the type insured against (subject to self-insured retentions and
deductibles) by the Purchaser, its Subsidiaries and, to the knowledge of the
Purchaser, its Investment Entities. Except as would not reasonably be expected
to result in a Purchaser Material Adverse Effect, neither the Purchaser nor any
of its Subsidiaries or, to the knowledge of the Purchaser, any of its Investment
Entities nor any of their respective Properties is or are subject to any
material order, writ, judgment, injunction, decree, determination or award that
remains unsatisfied or in effect.
(h) Environmental Matters. Except for matters that would not,
individually or in the aggregate, reasonably be expected to have a Purchaser
Material Adverse Effect:
(i) The operations of the real property owned or operated
by the Purchaser or its Subsidiaries, the Purchaser, and its Subsidiaries and,
to the knowledge of the Purchaser, its Investment Entities are in compliance
with applicable Environmental Laws;
(ii) The Purchaser, its Subsidiaries and its Investment
Entities and the real property owned or operated by the Purchaser or its
Subsidiaries are in compliance with the terms of their Licenses and Permits
required under applicable Environmental Laws;
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(iii) There has been no Release at any parcel of real
property owned or operated by the Purchaser or its Subsidiaries;
(iv) (A) No Environmental Claims are pending against the
Purchaser or any of its Subsidiaries or the real property owned or operated by
the Purchaser or its Subsidiaries or, to the knowledge of the Purchaser, any
Investment Entity or any of its properties, (B) neither the Purchaser, its
Subsidiaries, nor to the knowledge of the Purchaser, any of its Investment
Entities has knowledge or written notice of any threatened Environmental Claim
against the Purchaser, or its Subsidiaries, its Investment Entities or the
properties, and (C) no order, judgement or decree providing for a remedial
obligation has been imposed on the Purchaser, any of its Subsidiaries or any of
the real property.
(i) Validity of Shares. The issuance of the shares of Purchaser
Common Stock and Purchaser Convertible Preferred Stock comprising the Purchaser
Common Stock Consideration and the Purchaser Convertible Stock Consideration and
that may be issued pursuant to Section 2.2 has been duly authorized by all
necessary corporate action on the part of the Purchaser and, when such shares of
Purchaser Common Stock or Purchaser Convertible Preferred Stock, as applicable,
are issued and delivered in accordance with Section 1.6 or Section 2.2, as
applicable, such shares of Purchaser Common Stock will be validly issued, fully
paid and nonassessable.
(j) Transactions with Affiliates. Other than matters referred to in
Schedule 3.2(j) and transactions among any of the Purchaser and its
Subsidiaries, and except as disclosed in the SEC Reports, there are no material
contracts, agreements or transactions between the Purchaser or any of its
Subsidiaries, on the one hand, and any Affiliates, directors or executive
officers of the Purchaser, on the other.
(k) Financing. On or prior to the date hereof, the Purchaser has
received and delivered to the Funds a copy of a commitment letter from Bank One
of Arizona, with respect to the debt financing required to consummate the
transactions contemplated by this Agreement. On the date of the Closing the
Purchaser will have available all necessary financing to consummate the
transactions contemplated by this Agreement (including the Stock Purchase and
any necessary refinancing of the indebtedness of the Company and its
Subsidiaries).
(l) Brokers. Except as set forth on Schedule 3.2(l), no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Purchaser.
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ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 Conduct of Business of the Company Pending the Closing.
Except as contemplated by this Agreement, during the period from the date of
this Agreement to the Closing Date, the Funds agree that the Company shall, and
shall cause its Subsidiaries and, to the extent within its control, its
Investment Entities to, act and carry on their respective businesses in all
material respects in the ordinary course of business and, to the extent
consistent therewith, use reasonable efforts to preserve intact their current
business organizations, keep available the services of their current key
officers and employees and preserve the goodwill of those engaged in material
business relationships with them and to maximize the cash position of the
Company to fund in part the Distribution. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Closing
Date, except as expressly contemplated by this Agreement, the Funds agree that
the Company shall not, and shall not permit any of its Subsidiaries or, to the
extent within the Company's control, its Investment Entities to, without the
prior consent of the Purchaser:
(a) except as set forth on Schedule 4.1(a), (i) declare, set aside
or pay any dividends on, or make any other distributions in respect of, any of
its outstanding Ownership Interests, other than dividends and distributions to
the Company or any of its wholly owned Subsidiaries and other than dividends and
distributions by non-wholly owned Subsidiaries and Investment Entities, (ii)
split, combine or reclassify any of its outstanding Ownership Interests or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its outstanding Ownership Interests or (iii)
purchase, redeem or otherwise acquire any outstanding Ownership Interests of the
Company or any of its Subsidiaries or its Investment Entities, or any rights,
warrants or options to acquire any such Ownership Interests except, in the case
of clause (iii), for the acquisition by the Company or its wholly owned
Subsidiaries of the capital stock of its wholly owned Subsidiaries;
(b) except as set forth on Schedule 4.1(b), authorize for issuance,
issue, deliver, sell or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise encumber
any shares of its Ownership Interests, any other voting securities or any
securities convertible, exchangeable or exercisable into, or any rights,
warrants or options to acquire, any such Ownership Interests, voting securities
or other equity equivalents (including without limitation stock appreciation
rights) (other than sales of capital stock of any wholly owned Subsidiary of the
Company to the Company or another wholly owned Subsidiary of the Company), or
subject to contractual obligations, not consent to the admission of any new
partners to any Partnerships;
(c) except to the extent required under existing Company Plans as in
effect on the date of this Agreement or as set forth on Schedule 4.1(c), (i)
increase or accelerate the compensation or fringe benefits of any of its
directors, officers or employees, except for increases
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in salary or wages of employees of the Company who are not directors or officers
of the Company in the ordinary course of business in accordance with past
practice, or (ii) grant any severance or termination pay not currently required
to be paid under any Company Plans as in effect on the date hereof, or (iii)
enter into any employment agreement with any present or former director or
officer or senior employee, or, other than in the ordinary course of business
consistent with past practice and subject to a right to terminate without cause
and without severance payments, any other employee of the Company, or (iv)
establish, adopt, enter into or amend or terminate any Company Plan or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees of the Company, its
Subsidiaries or its Investment Entities; provided, however, that the Collective
Bargaining Agreement for employees of the Xxxxxx'x, Inc. laundry operation and
the Hotel Properties in Rochester, Minnesota (the "Collective Bargaining
Agreement"), which is to expire on August 31, 1997, and the salaries and
benefits provided thereunder may be amended, modified, extended or replaced as
the result of good faith negotiations between the Company and the Union;
(d) amend its or their Articles of Incorporation, By-Laws,
partnership agreement or other comparable charter or organizational documents or
alter through merger, liquidation, reorganization, restructuring or in any other
fashion the entity structure or ownership of any of the Company's Subsidiaries
and, to the extent within the control of the Company, its Investment Entities;
(e) except as set forth on Schedule 4.1(e), acquire or agree to
acquire (i) by merging or consolidating with, or by purchasing a substantial
portion of the stock, assets or properties of, (including through the exercise
of any right of first refusal or the exercise of any option to purchase or
convert), or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof;
or (ii) any material assets or properties (except purchases of inventory and
services in the ordinary course of business consistent with past practice and
capital expenditures permitted by (g) below);
(f) except as provided in Section 4.22, sell, lease, license,
mortgage or otherwise encumber or subject to any Lien or otherwise dispose of
any of its Properties or assets, except (i) sales of inventory and worn out or
obsolete furniture, fixtures and equipment in the ordinary course of business
consistent with past practice, (ii) leases of retail space in Properties which
are hotels for more than 2,500 square feet or have a term of less than 6 months
and which are in the ordinary course of business consistent with past practice;
provided that Purchaser agrees not to unreasonably withhold its consent to any
lease of a longer term or greater square footage, or (iii) as disclosed on
Schedule 4.1(f);
(g) except as set forth on Schedule 4.1(g) make any capital
expenditure or commitment to make any such expenditure except in accordance with
the Capital Expenditures Budget or defer making any budgeted capital
expenditure; provided that (i) the Company shall not make any expenditure, or
enter into any agreement which could result in an expenditure, in excess of
$50,000 or approve any renovation plans or specifications without the approval
of the
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Purchaser, which approval shall not be unreasonably withheld and (ii) following
notice to, and to the extent circumstances permit, consultation with Purchaser,
the Company shall be permitted to make capital expenditures not contemplated by
the Capital Expenditure Budget to make emergency repairs;
(h) (i) except for mandatory prepayments from the proceeds of the
sale of any asset listed on Schedule 4.1(f) and as set forth on Schedule 4.1(h),
incur or prepay any indebtedness for borrowed money or guarantee any such
indebtedness of another Person (other than guarantees by the Company in favor of
any of its wholly owned Subsidiaries or by any of its Subsidiaries in favor of
the Company), issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its Subsidiaries or its
Investment Entities, guarantee any debt securities of another Person, enter into
any "keep well" or other agreement to maintain any financial condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term working capital borrowings incurred in
the ordinary course of business consistent with past practice, which borrowings
shall not in the aggregate exceed $8,500,000 outstanding at any particular time
(provided that the foregoing shall not restrict the Company or any of its
Subsidiaries or Investment Entities from renewing or replacing existing working
capital lines provided that no such lines shall in the aggregate be in excess of
$500,000 over the working capital lines that the Company has available to it on
the date heretofore provide for any penalties for the prepayment or termination
of the same (other than customary LIBOR breakage costs), or (ii), except
pursuant to partnership agreements previously disclosed to Purchaser and except
pursuant to capital calls of Investment Entities not controlled by the Company
or its Subsidiaries, make any loans, advances or capital contributions to, or
investments in, any other Person, other than to the Company or any wholly owned
Subsidiary of the Company, and other routine advances to employees (which
advances shall not exceed $50,000 in the aggregate at any one time outstanding);
(i) change any accounting principle, method or practice used by it
or any change in the classification of assets, recognition of income or expenses
or the depreciation or amortization policies or rates theretofore applies,
unless required by the Financial Accounting Standards Board ("FASB");
(j) make any material Tax election or settle or compromise any
income Tax liability in excess of $250,000, in the aggregate or defer the
payment of any material Taxes that come due;
(k) enter into any contract, including but not limited to mortgages
and security agreements, which would require the consent (including the waiver
of any right of first refusal or similar right) of, the third party to the
consummation of the transactions contemplated hereby other than renewals or
replacements of existing working capital lines of credit on terms no less
favorable to the Company than the terms of such existing lines of credit;
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(l) make any single expenditure in excess of $50,000 without
providing Purchaser's senior management the reasonable right to review and make
recommendations of ways to defer payment and improve the Company's cash
position, provided, however, that the Company shall be permitted to make timely
payments required to avoid a breach or default under any existing contractual
arrangements; or
(m) authorize any of, or commit or agree to take any of, the
foregoing actions.
None of (a) through (m) above shall in any way be deemed to prevent
the Company from making current interest payments on the Notes.
SECTION 4.2 Conduct of Business of the Purchaser. During the period
from the date of this Agreement to the Closing Date the Purchaser shall not
declare, set aside or pay any dividends on, or make any other distributions in
respect of (including, without limitation, making any rights offering), the
Purchaser Common Stock having a record date for determining the stockholders of
Purchaser entitled to receive such dividend or distribution on or prior to the
Closing Date, except for the payment of regular quarterly cash distributions on
shares of Purchaser Common Stock in an aggregate amount not exceeding 115% of
the most recent quarterly dividends.
SECTION 4.3 Access to Information; Confidentiality.
(a) From the date hereof to the Closing Date, the Funds agree that
the Company shall, and shall cause its Subsidiaries and, to the extent within
the Company's control, the Investment Entities to, afford the officers,
employees, auditors and other agents of the Purchaser, full and complete access
to its officers, employees, Properties, offices, plants and other facilities and
to its contracts, commitments, books and records, and shall furnish the
Purchaser and such other Persons all such documents and such financial,
operating and other data and information regarding the Company, its Subsidiaries
and, to the extent within its control, its Investment Entities that are in the
possession of the Company and its Subsidiaries as the Purchaser, through its
officers, employees or agents may from time to time request. Without limiting
the foregoing, the Purchaser shall be provided copies of all existing space
plans and plans for proposed renovations and shall have the right to locate two
employees of the Purchaser or its agents or consultants at the Company's
corporate headquarters, which employees, agents or consultants will be provided
with free accommodations at the Company's hotels, reasonable office space and
support (taking into account the availability of such space and support) and
such employees, agents or consultants and the senior executives of the Purchaser
shall be entitled to attend all operations review meetings between senior
officers of the Company and the Funds and all meetings of senior officers of the
Company where the integration of the Company's operations and personnel into
those of the Purchaser and its affiliates post-Closing is discussed. In
addition, the Purchaser shall have the right to conduct, at its own cost and
expense, engineering and/or environmental site assessments and title reports of
each of the Properties by one or more independent engineering or environmental
site assessment firms (which assessments may include the taking and testing of
samples to the extent reasonably required and reasonably conducted) or
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title insurance companies. The Purchaser shall use its best efforts to complete
such site assessments as soon as practicable, and in any event, such site
assessments shall be completed no later than forty-five (45) days from the date
hereof. The Funds agree that the Company shall fully cooperate and shall cause
its Subsidiaries and, to the extent within the Company's control, the Investment
Entities to fully cooperate, with such site assessments. The Purchaser shall
keep the Funds and the Company informed on a current basis of the status of any
site assessments and to promptly notify the Funds and the Company of any
material issues that are identified pursuant to such site assessments. Any
environmental or engineering assessments by the Purchaser will be conducted in a
manner that does not cause any meaningful interruption to the business or
operations of any of the Properties and by Xxxxxxx Environmental Consultants and
Xxxxxxxx and Xxxxxxx or another licensed engineering or environmental firm with
not less than $3,000,000 of errors and omission insurance coverage (subject to
customary deductibles). Purchaser shall indemnify and hold the Company, its
Subsidiaries, its Investment Entities and the Funds harmless against, and agrees
to promptly reimburse such Persons for, any losses, costs, penalties, injuries
or damages to any of their respective assets or to any third parties resulting
from the conduct (but not the results) of the environmental and engineering
assessments.
(b) From the date hereof to the Closing Date, the Purchaser shall,
and shall cause its Subsidiaries and, to the extent within its control, its
Investment Entities to, afford the officers, employees, auditors and other
agents of the Company and the Funds, reasonable access during normal business
hours to its officers, employees, Properties, offices, plants and other
facilities and to its contracts, commitments, books and records, and shall
furnish the Company and such other Persons all such documents and such
financial, operating and other data and information regarding the Purchaser, its
Subsidiaries and, to the extent within its control, its Investment Entities that
are in the possession of the Purchaser and its Subsidiaries as the Funds,
through their respective officers, employees or agents may from time to time
reasonably request.
(c) Each of the Purchaser, the Company and the Funds will hold, and
will cause their officers, employees, auditors and other agents to hold, in
confidence pursuant to the Confidentiality Agreement, previously executed by
Xxxxxxxxx Partners, L.L.C. and the Purchaser, all documents and other
information received pursuant to this Section 4.3.
SECTION 4.4 Employee Benefits Matters.
The Purchaser agrees to use its reasonable best efforts to cause the
Lessee to provide to each of the employees of the Company and its Subsidiaries
who are retained by the Lessee (the "Employees"), for a period commencing at the
Closing Date and ending on the one-year anniversary of the Closing Date,
employee benefits comparable in the aggregate to those currently provided by the
Lessee to its employees, taking into account the duties and responsibilities of
such Employees and labor market conditions in the areas in which they work;
provided, however, that Employees covered by collective bargaining agreements in
effect as of the date hereof (or, entered into after the date hereof in
accordance with Section 4.1(c)(iv)) shall be provided with such benefits as
shall be required under the terms of the applicable collective bargaining
agreement. Subject to the foregoing, nothing herein shall prevent the amendment
or
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termination of any plan, program or arrangement. The Purchaser and the Company
shall work together in good faith to issue a joint statement as soon as
reasonably practicable after the date of this Agreement to the Company's
employees regarding the transactions contemplated by this Agreement, which
statements shall comply with the notice standards of the WARN Act.
SECTION 4.5 Directors' and Officers' Indemnification and Insurance.
The Purchaser covenants and agrees with the Funds that on and after the Closing
Date all terms and provisions of Section 4.7 of the Agreement and Plan of
Merger, dated as of May 6, 1996, among the Xxxxxxxxx Fund (formerly known as
Tiger Real Estate Fund L.P.), Tiger Real Estate Acquisition Corp. and Xxxxxx
Realty Corporation will be complied with.
SECTION 4.6 Registration Rights Agreement. On the Closing Date the
Purchaser and the Fund shall execute a Registration Rights Agreement
substantially in the form attached hereto as Exhibit 4.6.
SECTION 4.7 Further Action; Reasonable Best Efforts. Upon the terms
and subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done, all things necessary, proper or advisable to
facilitate to satisfaction and make effective each condition to the consummation
of the transactions, including without limitation the Stock Purchase,
contemplated by this Agreement, including but not limited to (i) cooperating in
the preparation and filing of any required filings under the HSR Act, and any
amendments to any thereof and (ii) using its reasonable best efforts to make all
required regulatory filings and applications and to obtain at the lowest
practicable cost all Licenses and Permits, consents, waivers of rights of first
refusal and similar rights, approvals, authorizations, qualifications and orders
of Governmental Entities and parties to contracts with the Company, its
Subsidiaries and the Investment Entities as are necessary for the consummation
of the transactions contemplated by this Agreement, or to permit such Licenses
and Permits, consents, waivers of rights of first refusal and similar rights,
approvals, authorizations, qualifications, orders and contracts to continue in
effect without modification after the Closing Date. Notwithstanding the
foregoing, (A) the Funds shall not be required to incur or assume any liability
or obligation of any nature (including, without limitation, making any amendment
or modification to any existing agreement, arrangement or understanding) to any
Governmental Entity or other third party, (B) the Company's and the Funds'
obligations under Section 4.20 shall only be as set forth therein and shall not
be subject to this Section 4.7, (C) the Purchaser shall have no obligation to
obtain (or assist in obtaining) the Distribution Financing except as
specifically set forth in Section 4.20, (D) no party hereto shall be required to
commence litigation and (E) neither the Company, the Purchaser nor any of their
respective Subsidiaries shall be required to incur or assume any liability or
obligation of any nature (including, without limitation, making any amendment or
modification to any existing agreement, arrangement or understanding) to any
Governmental Entity or other third party that is not conditioned on, and
effective only upon the occurrence of, the Closing.
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SECTION 4.8 Public Announcements. The Purchaser, on the one hand,
and the Company and the Fund, on the other hand, shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to the Stock Purchase, shall provide each other the opportunity to
review and comment upon, any such press release or public statement, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with any
securities exchange on which its securities are listed. The parties agree that
the initial press release to be issued with respect to the Stock Purchase shall
be in the form heretofore agreed to by the parties.
SECTION 4.9 Maintenance of REIT Qualification. If at any time either
the Purchaser or the Funds believes that the consummation by the Purchaser of
the transactions contemplated by this Agreement, after giving effect to the
additional actions contemplated by Schedule 1.5 hereto, would result in the
Purchaser losing its REIT Qualification, such party shall promptly advise the
others of such belief and the reasons therefore and all parties will negotiate
in good faith and use their respective best efforts to agree to such
modifications to the transactions contemplated by this Agreement and Schedule
1.5 as may be necessary to allow the consummation of the transactions
contemplated hereby without the loss of the Purchaser's REIT Qualification and
in a manner that does not diminish in any material respect the benefits of the
transactions contemplated hereby to the Funds and the Purchaser.
SECTION 4.10 Transfer Restrictions. (a) Each Fund covenants and
agrees that all shares of Purchaser Common Stock and the Purchaser Convertible
Preferred Stock constituting the Purchaser Common Stock Consideration and the
Purchaser Convertible Preferred Stock Consideration or received upon conversion
of the Purchaser Convertible Preferred Stock and issued to such Fund (the
"Shares") will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities Act.
Each Fund agrees that, without the consent of the Purchaser, such Fund will not,
directly or indirectly, offer, transfer, sell, pledge, hypothecate or otherwise
dispose of any of the Shares, except for (i) sales in compliance with Rule 144
under the Securities Act, (ii) a public offering of Shares in accordance with
the registration rights set forth in the Registration Rights Agreement or (iii)
a sale, pledge, hypothecation or other disposition in connection with which such
Fund shall have delivered to the Purchaser a written opinion of legal counsel to
such Fund, reasonably satisfactory in form and substance to the Purchaser, to
the effect that the transaction may be effected without registration under the
Securities Act.
(b) Each Fund covenants and agrees that, notwithstanding anything
herein to the contrary, such Fund will not, directly or indirectly, transfer,
sell or otherwise dispose of any Shares for a period of twelve (12) months after
the Closing Date (the "Initial Lock-Up Period"). Following the Initial Lock-Up
Period, the Funds shall be permitted to sell, transfer or otherwise dispose of
the following percentages of all Shares owned by the Funds on the day after the
Closing Date (which number of Shares shall be increased or decreased as
appropriate in the event that the number of issued and outstanding shares of
Purchaser Common Stock shall have been changed into a different number of shares
or a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares or
otherwise):
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(i) up to 25% of the Shares may be sold, transferred or otherwise disposed of
during the period ending on the three month anniversary of the last day of the
Initial Lock-Up Period; (ii) up to 50% of the shares may be sold, transferred or
otherwise disposed of during the period ending on the six month anniversary of
the last day of the Initial Lock-Up Period; (iii) up to 75% of the shares may be
sold, transferred or otherwise disposed of during the period ending on the nine
month anniversary of the last day of Initial Lock-Up Period and (iv) on the day
after the one year anniversary of the last day of the Initial Lock-Up Period all
restrictions in this clause (b) will terminate; provided that following the
Initial Lock-Up Period, the Funds may, in their sole discretion, distribute
solely to their respective limited and general partners all or any portion of
the Shares in a registered offering utilizing the registration rights provided
for in the Registration Rights Agreement. For purposes of determining the number
of Shares sold, transferred or otherwise disposed of for purposes of this clause
(b), the Purchaser Common Stock and Purchaser Convertible Preferred Stock shall
be aggregated and considered together, with the Purchase Convertible Preferred
Stock being treated on an as converted basis.
SECTION 4.11 Board Representation.
(a) (i) The Purchaser shall increase the number of authorized
directors from 8 to 9 and cause one person designated by the Funds to be
elected to fill the vacancy created on the Board of Directors of the
Purchaser, effective upon the Closing Date. Thereafter, in the event that
the Purchaser shall increase the number of members of its Board of
Directors, the Funds shall be entitled to have a number of representatives
on the Board of Directors of the Purchaser so that the Funds
representation on the Board of Directors of the Purchaser shall equal a
number of directors equal to the product of the total number of directors
on such Board multiplied by the percentage of the outstanding Purchaser
Common Stock that is beneficially owned by the Funds (other than shares
purchased by the Funds from any person other than the Purchaser) on a
fully diluted basis (including the shares of Purchaser Common Stock
issuable upon conversion of the Purchaser Convertible Preferred Stock)
provided, however, that such calculation shall be rounded to the nearest
whole number of directors; provided, further, that, unless otherwise
provided in Section 4.1(a)(ii), irrespective of the above calculation, the
Funds shall have at least one designee on the Board of Directors of the
Purchaser. In the event that the Funds are entitled to designate more than
one person to serve on the Purchaser's Board of Directors, the Funds'
designees shall be allocated among the Purchaser's classes of directors as
equally as possible.
(ii) If the number of directors designated by the Funds is
increased to greater than one pursuant to Section 4.11(a)(i), then the
Purchaser agrees that as long as the Funds continue to beneficially own in
the aggregate a number of shares of the Purchaser Common Stock equal to at
least 50% of the outstanding Purchaser Common Stock beneficially owned by
the Funds immediately following the Closing, which calculation shall be
made as appropriate to take into account any conversions,
reclassifications, reorganizations, in-kind dividends, splits, reverse
splits and similar events that may occur with the Purchaser Common Stock,
at all meetings of the stockholders of
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the Purchaser at which members of the Purchaser's Board of Directors are
elected, the Purchaser shall nominate for election as a director as part
of the management slate, a number of persons designated by the Funds such
that if such persons were elected as directors the number of directors of
the Purchaser designated by the Funds pursuant to this Section would equal
the number of directors as determined pursuant to Section 4.11(a)(i). The
Purchaser also agrees that as long as the Funds continue to beneficially
own in the aggregate a number of shares of the Purchaser Common Stock
equal to at least 33 1/3% but less than 50% of the Purchaser Common Stock
beneficially owned by the Funds immediately following the Closing, which
calculation shall be made as appropriate to take into account any
conversions, reclassifications, reorganizations, in-kind dividends,
splits, reverse splits and similar events that may occur with the
Purchaser Common Stock, at all meetings of the stockholders of the
Purchaser at which members of the Purchaser's Board of Directors are
elected, the Purchaser shall nominate for election as a director as part
of the management slate, one person designated by the Funds unless a
person designated by the Funds pursuant to this Section is serving as a
director of the Purchaser and such person's term will not expire in
connection with such shareholder meeting. The Purchaser agrees to provide
the same type of support for the election of the designees of the Funds as
directors of the Purchaser, its affiliates and its management provides to
other persons standing for election as directors of the parent as part of
the management slate. In the event that any designee of Purchaser for
election to the Purchaser's Board of Directors pursuant to the foregoing
provisions shall cease to serve as a director for any reason (other than
the failure of the stockholders of Purchaser to elect such person as a
director), the vacancy resulting therefrom shall be filled by a designee
of the Funds.
(iii) As long as the Funds have the right to designate at
least one nominee to the Board of Directors of the Company, unless
otherwise agreed by the Funds, each Committee of the Purchaser's Board of
Directors will contain at least one member designated by the Funds.
(iv) The Purchaser shall furnish to the Funds' designee or
designees, as the case may be, on the Purchaser's Board of Directors all
information that is provided to the other members of the Board of
Directors of the Purchaser.
(v) The Purchaser and the Funds agree that any breach of this
Section 4.11 would cause irreparable injury to the Funds and that money
damages will be an inadequate remedy for any breach or threatened breach
of the agreements described in this Section 4.11. The Purchaser agrees
that in the event of a breach or a threatened breach of the agreements
described in this Section 4.11, the Funds shall, in addition to other
rights and remedies existing in their favor, be entitled to specific
performance and/or injunctive relief in order to enforce, or prevent any
violations of, the provisions of this Section 4.11 (without the posting of
a bond or other security).
SECTION 4.12 Amendment of Articles of Incorporation. On or prior to
the Closing Date, the Purchaser shall amend its Certificate of Incorporation by
filing the Certificate
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of Designation with the Secretary of the State of Delaware. As long as any
shares of Purchaser Convertible Preferred Stock remain outstanding, Purchaser
will reserve and have available for issuance to the holders of the Purchaser
Convertible Preferred Stock upon conversion thereof a number of authorized but
unissued shares of the Purchaser Common stock equal to the number of shares of
Purchaser Common Stock issuable upon conversion of the Purchaser Convertible
Preferred Stock.
SECTION 4.13 Non-Solicitation. If the transactions contemplated
hereby have been abandoned pursuant to Section 6.1 or if this Agreement shall
have been terminated for any reason, the Purchaser hereby agrees that from the
date hereof until the date of such termination or abandonment and for a period
of twenty-four (24) months thereafter, Purchaser shall not, on its own behalf or
an behalf of any person, firm or company, directly or indirectly, solicit or
offer employment to any person who is or has been employed by the Company or its
Subsidiaries or its Investment Entities at any time during the twelve (12)
months immediately preceding such solicitation.
SECTION 4.14 No Negotiation. Until such time, if any, as this
Agreement is terminated pursuant to Section 6.1, the Funds will not, and will
cause the Company and its Subsidiaries and their respective employees and agents
not to, directly or indirectly, solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than the Purchaser) relating to any transaction involving the sale
of all or substantially all of the business or assets of the Company or any
Subsidiary of the Company, or any of the capital stock of the Company or any
Subsidiary of the Company, or any merger, consolidation, business combination,
or similar transaction involving the Company or any Subsidiary of the Company.
SECTION 4.15 Organization and Qualification of Subsidiaries. The
Company shall use its reasonable best efforts to provide the Purchaser, as soon
as reasonably practicable following the date hereof, the records identified on
Schedule 3.1(a). In addition, to the extent any Subsidiary is not duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and, with respect to each Subsidiary that owns a
Hotel Property or material asset, qualified to do business in the state where
such Hotel Property or other material asset is located, the Company shall, at
the Funds' sole cost and expense, take all action necessary to make such
Subsidiary duly organized, validly existing and in good standing or qualified to
do business, as applicable, in such jurisdiction prior to the Closing.
SECTION 4.16 Licenses and Permits. As soon as practicable, and in
any event no later than thirty (30) days after the date hereof, the Company
shall provide Purchaser with a list and copies of all Licenses and Permits
possessed by the Company and its Subsidiaries.
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SECTION 4.17 Additional Information.
Within 30 days of the date hereof, the Company shall provide
Purchaser with a list and copies of all agreements pursuant to which the Company
or its Subsidiaries is or may be liable for a payment of in excess of $5,000 in
any given year.
SECTION 4.18 New York Stock Exchange Listing. The Purchaser shall,
if permitted by the rules of the New York Stock Exchange (the "NYSE") or such
other national securities exchange as the Purchaser Common Stock may be listed,
list and keep listed on the NYSE or such other national securities exchange as
the Purchaser Common Stock may be listed, all shares of the Purchaser Common
Stock Consideration which have been registered under the Securities Act for so
long as the Purchaser Common Stock remains so listed.
SECTION 4.19 Share Trust. The Purchaser shall not repurchase, redeem
or otherwise acquire any of the Purchaser Common Stock if such action would
cause any of the Purchaser Common Stock Consideration or the Purchaser Preferred
Stock Consideration, or any shares of the Purchaser Common Stock issued to the
Funds upon the conversion thereof, to be transferred pursuant to the Purchaser's
Amended Articles of Incorporation to the Share Trust (as such term is defined in
Section 2(a) of such Articles of Incorporation); provided that for purposes of
determining whether such a repurchase, redemption or acquisition of Purchaser
Common Stock would cause such a transfer to the Share Trust, it shall be assumed
that: (i) each constituent partner of the Funds owns (independent of such
partner's ownership in the Fund) no more Purchaser Common Stock than such
partner owned on the Closing Date, and (ii) each such constituent partner's
percentage ownership interest in the Funds is the lesser of (A) such partner's
actual ownership percentage at the time of the repurchase, redemption or
acquisition, or (B) such partner's ownership percentage as delivered to the
Purchaser prior to the date hereof. If there is a reasonable question on the
part of the Funds as to whether an intended repurchase, redemption or other
acquisition by the Purchaser of the Purchaser Common Stock will cause such a
transfer to the Share Trust, upon receipt by the Funds and approval by the
Funds' counsel of an opinion to the Purchaser from counsel to the Purchaser in
form and substance reasonably satisfactory to the Funds to the effect that the
intended acquisition will not cause such a transfer to the Share Trust, the
Company will be permitted to effect such repurchase, redemption or other
acquisition, provided, that the Purchaser will remain liable for any breach of
the first sentence of this Section 4.19 with respect to such transaction. The
Funds shall provide the Purchaser and its counsel such written representations
of and undertakings on the part of the Funds addressing such matters as shall be
reasonably required by such counsel in connection with the preparation of such
opinion.
SECTION 4.20 Earnings and Profits Distribution. (a) (i) Subject to
the terms and conditions set forth in this Section 4.20, the Company will seek
to obtain all necessary financing for the Distribution from one or more
financial institutions (excluding the Funds or the Purchaser) on the terms and
conditions set forth in this Section 4.20 (the "Distribution Financing"), and
the Purchaser will not participate in obtaining the Distribution Financing
(other than, if requested by the Company, identifying potential sources of the
Distribution Financing).
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The Distribution Financing may be secured only by assets of the Company and/or
its Subsidiaries and shall be repayable solely from such assets and/or the
earnings and profits of such assets; provided that the Distribution Financing
may include a general recourse obligation of the Company prior to the
contribution of its assets to a limited liability company or grantor trust as
contemplated by Schedule 1.5 and, after such contribution, to such limited
liability company or grantor trust; provided further that the lenders shall not
have any general recourse to the Purchaser or its assets other than the Company
and/or its Subsidiaries and the Purchaser shall not be required to guarantee or
otherwise provide assurances to the lenders or be a party to the agreements with
respect to the Distribution Financing but shall have the right to approve the
Distribution Financing, which approval shall not be unreasonably withheld (with
the ability of the Purchaser to withhold its consent being subject to its using
its reasonable best efforts to cause the satisfaction of the conditions in
Article V hereof and such approval not to be withheld on the basis of the
security granted for such Financing or its maturity as long as such terms comply
with the provisions hereof, and the Purchaser will also not be permitted to
withhold its consent if the Distribution Financing can be repaid at the option
of the borrower without penalty). The Company will use its reasonable commercial
efforts to have the Distribution Financing secured by as few Properties of the
Company and its Subsidiaries as the Company in good faith believes is practical
in order to obtain such financing, provided that the Company will be entitled to
have such financing secured by as many Properties of the Company as it deems
necessary in order to obtain such financing and shall not secure the financing
with any assets other than Properties or the proceeds thereof. The maturity date
of the Distribution Financing will be at least two years after the Closing Date.
Neither the Purchaser nor the Funds shall be responsible for the costs and
expenses of the Company seeking to arrange, or effecting, the Distribution
Financing.
(ii) Notwithstanding the foregoing, the Funds may, but shall not be
obligated to, fund the Distribution by accepting a promissory note (the
"Distribution Note") issued by the Company as a dividend to the Funds. The
Distribution Note, if issued, and related security shall be on the same terms
and conditions as the Distribution Financing described in Section 4.20(a)(i)
except that the Distribution Note shall mature in two years, subject to optional
prepayment by the borrower without penalty and, the borrower will have the right
within 60 days of issuance to repackage the collateral for such loan with first
mortgages on Hotel Properties having a loan to value ratio based on recent MAI
Appraisals on commercially reasonable terms mutually acceptable to the Purchaser
and the Funds.
(b) In the event that the Company determines in good faith that it
is unable to obtain the Distribution Financing described in Section 4.20(a)(i)
from parties other than the Funds and the Funds determine in their sole
discretion not to finance the Distribution as permitted by Section 4.20(a)(ii),
the Company, the Funds and the Purchaser will negotiate in good faith and use
their respective reasonable best efforts to agree upon an alternative structure
to fund the Distribution in a manner that, unless agreed otherwise by the
parties hereto, does not diminish in any material respect the benefits of the
transactions contemplated hereby to the Funds and the Purchaser does not cause
the Purchaser to lose its REIT Qualification.
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(c) Notwithstanding the foregoing, (A) the Funds shall not be
required to incur or assume any liability or obligation of any nature
(including, without limitation, making any amendment or modification to any
existing agreement, arrangement or understanding to any Governmental Entity or
other third party), and (B) neither the Company, the Purchaser nor any of their
respective Subsidiaries shall be required to incur or assume any liability or
obligation of any nature (including, without limitation, making any amendment or
modification to any existing agreement, arrangement or understanding) with
respect to the Distribution Financing until the day immediately preceding the
Closing Date and receipt of satisfactory evidence that the conditions to the
Closing in Article V will be satisfied on the date of Closing, but thereafter
the consummation of the Distribution Financing will not be contingent on the
Closing.
SECTION 4.21 GMX. The Company shall use its reasonable best efforts
to ensure that on or before the Closing Date, the Company owns 100% of the
outstanding shares of the common stock of GMX, Inc.
SECTION 4.22 Non-Core Assets. The Company shall use commercially
reasonably efforts to sell the Non-Core Assets set forth on Schedule 4.22;
provided, however, that the Company will not enter into any contract or other
obligation to sell any of the Non-Core Assets without the prior consent of the
Purchaser, which consent shall not be unreasonably withheld.
ARTICLE V
CONDITIONS TO THE CLOSING
SECTION 5.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Closing shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions precedent:
(a) Government Approvals. All consents, approvals, authorizations or
permits of, actions by, or filings with or notifications to, and all expirations
of waiting periods imposed by, any Governmental Entity listed on Schedule 5.1(a)
shall have been filed, occurred or been obtained and shall be in full force and
effect.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Stock Purchase shall be in effect, no action
or proceeding shall have been commenced by any Governmental Entity seeking any
injunction, restraining order or other order which seeks to prohibit
consummation of the Stock Purchase, and no action or proceeding shall have been
commenced by any Governmental Entity seeking material damages in connection with
the Stock Purchase shall be pending; provided, however, that the parties
invoking this condition shall use reasonable efforts to have any such action,
proceeding, order or injunction vacated. There shall not be any action
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taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Stock Purchase, which makes the consummation of the
Stock Purchase illegal.
(c) Maintenance of REIT Qualification. Neither the Purchaser nor the
Funds shall have determined in good faith based upon the written opinion of
outside counsel that the consummation by the Purchaser of the transactions
contemplated by this Agreement, after giving effect to the additional actions
contemplated by Schedule 1.5 hereto and despite efforts by the Purchaser and the
Funds to restructure the transactions contemplated hereby and by Schedule 1.5 in
order to preserve the Purchaser's REIT Qualification pursuant to Section 4.9,
would result in the Purchaser losing its REIT Qualification.
(d) Earnings and Profits Certification. The Company and the
Purchaser shall have obtained the certification of the earnings and profits
calculation from KPMG as provided in Section 1.4 in a form reasonably acceptable
to the Purchaser and the Funds, and such certification shall have been revised
by KPMG to include the earnings and profits actually generated between the date
of the original certification pursuant to Section 1.4 and the most recent date
through which the earnings and profits are ascertainable as well as a reasonable
estimate of any earnings and profits from such most recent date through the
Closing Date, and Ernst and Young, LLP shall have reviewed and approved in the
exercise of its reasonable judgment the certification and workpapers of KPMG.
(e) Confirmation of Exempted Holder Status for Funds. No later than
two weeks following receipt by the Funds of a draft legal opinion from counsel
to the Purchaser to the effect that the proposed ownership by the Funds of the
shares of Purchaser Common Stock Consideration or Purchaser Convertible
Preferred Stock Consideration will not violate the restrictions contained in
Sections 2(b)(i)(x), 2(b)(i)(y) and 2(b)(i)(z) of Article V of the Amended
Articles of Incorporation of the Purchaser, the Funds shall provide the
Purchaser and its counsel (i) such representations and undertakings regarding
the Funds and its constituent partners as are reasonably necessary to address
the assumptions contained in such legal opinion regarding the Funds status as an
Exempted Holder (as defined in the Purchaser's Amended Articles of
Incorporation) and (ii) on or prior to the Closing, the Funds shall deliver to
the Purchaser written assurance that the Funds agree that any violation or
attempted violation by any individual of the Ownership Limit (as defined in
Section 2(a) of Article V of the Purchaser's Amended Articles of Incorporation)
due to such individual's Beneficial Ownership of the Purchaser Common Stock
Consideration or Purchaser Convertible Preferred Stock Consideration (or any
shares of Common Stock issued upon conversion thereof) (as defined in Section
2(a) of the Purchaser's Amended Articles of Association) will result in transfer
of their shares to the Share Trust as defined in and pursuant to Section 2(c) of
Article V of the Amended Articles of Incorporation.
SECTION 5.2 Conditions to Obligations of Purchaser. The obligations
of the Purchaser to effect the transactions contemplated by this Agreement are
further subject to the satisfaction of the following conditions prior to the
Closing Date unless waived by the Purchaser:
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(a) Representations and Warranties. (i) The representations and
warranties of the Funds set forth in this Agreement shall be true, correct and
complete as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement and except for such failures to be true, correct
and complete as of the Closing Date that would not individually or in the
aggregate reasonably be expected to have a Company Material Adverse Effect (it
being agreed that any matter for which the Purchaser is compensated pursuant to
clause (iv) of Section 7.1(c) shall not be deemed to have a Company Material
Adverse Effect) or arise out of or relate to the transactions referred to in
Section 1.5, and (ii) the Purchaser shall have received certificates to such
effect signed on behalf of the Funds by the general partner of the Funds,
respectively; provided, however, that receipt of such certificate shall not be
evidence that the Purchaser concurs with anything set forth in such certificate.
(b) Performance of Obligations of the Company and the Funds. The
Company and the Funds shall have performed in all material respects all material
obligations, required to be performed by it under this Agreement at or prior to
the Closing Date, and the Purchaser shall have received certificates to such
effect signed on behalf of the Company (with respect to the Company's
obligations) and the Funds (with respect to the Funds' obligations) by the chief
financial officer of the Company and the general partners of the Funds,
respectively.
(c) Required Consents; Governmental Approvals. (i) All Required
Consents shall have been obtained on terms and conditions that comply with the
terms of any side letter and that would not have a Company Material Adverse
Effect and shall be in full force and effect, and (ii) Purchaser shall have
received all consents, approvals, Licenses and Permits of Governmental Entities
so as to enable Sunstone Hotel Investors, L.P. to own the Properties (or the
Investment Entities to own the Properties owned by the Investment Entities on
the date hereof) and to enable Sunstone Hotel Properties, Inc. to operate the
Properties immediately following the Closing Date substantially in the same
manner as operated on the date hereof; provided that with respect to Licenses
and Permits or other governmental consents or approvals that can be obtained
only after consummation of the Stock Purchase, such consents, approvals,
Licenses or Permits shall not be a condition precedent if Purchaser shall have
not received advice from its counsel, after due inquiry of the appropriate
regulatory agency or from the appropriate regulatory agency to the effect that
there is a substantial possibility that such Licenses and Permits will not be
obtained promptly following such consummation and that failure to procure the
applicable License and Permit will result in a Company Material Adverse Effect.
(d) No Material Adverse Change. Since the date hereof, (i) there
shall have been no material adverse change in the business, Properties, assets,
results of operations, financial condition or prospects of the Company and its
Subsidiaries taken as a whole, nor (ii) shall there have been any development
which, taken together with all other developments in the aggregate, would
reasonably be expected to result in such a material adverse change, in each case
of clause (i) and (ii) except for such developments or changes arising out of or
relating to the transactions
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contemplated by this Agreement or to general economic conditions or other
factors affecting the hotel industry generally where the Company and its
Subsidiaries and Investment Entities operate.
(e) Legal Opinions. The Purchaser shall have received (i) a legal
opinion in form and substance reasonably satisfactory to the Purchaser from
in-house counsel to the general partner of the Funds to the effect that this
Stock Purchase Agreement and any written supplement hereto and the Registration
Rights Agreement each have been duly authorized, executed and delivered by the
Funds to the Purchaser, (ii) a legal opinion from Xxxxxxx Xxxxxxx & Xxxxxxxx in
form and substance reasonably acceptable to the Purchaser to the effect that
this Stock Purchase Agreement and any written supplement hereto and the
Registration Rights Agreement are enforceable against each of the Funds in
accordance with their respective terms, and (iii) a legal opinion from Minnesota
counsel reasonably acceptable to the Purchaser (which shall include Xxxxxx &
Whitney) in form and substance reasonably satisfactory to the Purchaser to the
effect that this Stock Purchase Agreement and any written supplement hereto has
been duly authorized, executed and delivered by the Company to the Purchaser and
is enforceable against the Company in accordance with its terms. Such legal
opinions may contain customary qualifications and limitations for opinions of
such nature.
SECTION 5.3 Conditions to Obligations of the Company and the Funds.
The obligations of the Company and the Funds to effect the transactions
contemplated by this Agreement are subject to the satisfaction of the following
unless waived by the Company and the Funds:
(a) Representations and Warranties. The representations and
warranties of the Purchaser set forth in this Agreement shall be true, correct
and complete as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement and except for such failures to be true, correct
and complete as of the Closing Date that would not, reasonably be expected to
have a Purchaser Material Adverse Effect or adversely affect the validity of, or
the Funds title to the Stock Consideration, and the Funds shall have received a
certificate to such effect signed on behalf of the Purchaser by the chief
financial officer of the Purchaser; provided, however, that receipt of such
certificate shall not be evidence that the Funds concur with anything set forth
in such certificate.
(b) Performance of Obligations of the Purchaser. The Purchaser shall
have performed in all material respects all material obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and the
Funds shall have received a certificate to such effect signed on behalf of the
Purchaser by the chief financial officer of the Purchaser to such effect.
(c) Required Consents; Governmental Approvals. (i) All Required
Consents shall have been obtained on terms and conditions that would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect and shall be in full force and effect, and (ii)
Purchaser shall have received all consents, approvals, Licenses and Permits of
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Governmental Entities so as to enable Sunstone Hotel Investors, L.P. to own the
Properties (or the Investment Entities to own the Properties owned by the
Investment Entities on the date hereof) and to enable Sunstone Hotel Properties,
Inc. to operate the Properties immediately following the Closing Date
substantially in the same manner as operated on the date hereof; provided that
with respect to Licenses and Permits or other governmental consents or approvals
that can be obtained only after consummation of the Stock Purchase, such
consents, approvals, Licenses or Permits shall not be a condition precedent if
the Funds shall have not received advice from its counsel, after due inquiry of
the appropriate regulatory agency or from the appropriate regulatory agency to
the effect that there is a substantial possibility that such Licenses and
Permits will not be obtained promptly following such consummation and that
failure to procure the applicable License and Permit will result in a Company
Material Adverse Effect.
(d) No Material Adverse Change. Since the date hereof, there shall
have been no material adverse change in the business, properties, assets,
results of operations or financial condition of the Purchaser and its
Subsidiaries taken as a whole, nor shall there have been any development which,
taken together with all other developments in the aggregate, would reasonably be
expected to result in such a material adverse change.
(e) Legal Opinions. The Funds shall have received (i) a legal
opinion from Ballard, Spahr, Xxxxxxx & Xxxxxxxxx, special Maryland counsel to
the Purchaser, in form and substance reasonably acceptable to the Funds to the
effect that this Stock Purchase Agreement and any written supplement hereto and
the Registration Rights Agreement have each been duly authorized, executed and
delivered by the Purchaser to the Funds and to the effect of the matters set
forth in Section 3.2(i) and 5.3(f), and (ii) a legal opinion from Xxxxxxx,
Phleger & Xxxxxxxx LLP, counsel to the Purchaser, in form and substance
reasonably acceptable to the Funds to the effect that this Stock Purchase
Agreement and any written supplement hereto and the Registration Rights
Agreement are each enforceable against the Purchaser in accordance with their
respective terms. Such legal opinions may contain customary qualifications and
limitations for opinions of such nature.
(f) Confirmation of Exempt Purchase Status for Funds. The Purchaser
shall have delivered to the Funds written certification, in form and substance
reasonably satisfactory to the Funds, that the Board of Directors of the
Purchaser has exempted the Funds and its partners from the Ownership Limit (as
defined in Section 2 of Article V of the Amended Articles of Incorporation of
the Purchaser) pursuant to Section 2(f) of Article V of the Amended Articles of
Incorporation of the Purchaser, which certificate shall attach copies of the
relevant resolution of the Board of Directors and the legal opinion that forms
the basis thereof.
(g) Distribution\Restructuring. Either (i) the Company shall have
obtained the Distribution Financing and paid the Distribution in the amount
determined pursuant to Section 1.4 or (ii) if the Company, after using
commercially reasonable efforts, is unable to obtain the Distribution Financing,
the parties shall have arrived at a mutually acceptable means for funding the
Distribution. This condition cannot be deemed waived in any manner by virtue of
any action
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or inaction by the Company, its Subsidiaries, its Investment Entities or the
Purchaser, including any failure by any of them to obtain the Distribution
Financing.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and the
Stock Purchase contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of the Purchaser and the Funds;
(b) by the Purchaser, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company or the Funds set forth in this
Agreement, or if any such representation or warranty of the Company or the Funds
shall have been or become untrue, in each case such that the conditions set
forth in Section 5.2(a) or Section 5.2(b), as the case may be, would be
incapable of being satisfied (following notice and failure to cure within 20
days of such notice);
(c) by the Funds, upon a breach of any representation, warranty,
covenant or agreement on the part of the Purchaser set forth in this Agreement,
or if any such representation or warranty of the Purchaser shall have been or
become untrue, in each case such that the conditions set forth in Section 5.3(a)
or Section 5.3(b), as the case may be, would be incapable of being satisfied
(following notice and failure to cure within 20 days of such notice);
(d) by either the Purchaser or the Funds, if any permanent
injunction or action by any Governmental Entity preventing the consummation of
the Stock Purchase or transactions contemplated by Section 1.5 shall have become
final and nonappealable;
(e) by either the Purchaser or the Funds if the Stock Purchase shall
not have been consummated on or prior to December 31, 1997; or
(f) by the Funds in the event that all of the conditions precedent
in Sections 5.1 and 5.2 are satisfied or would be satisfied but for a breach of
this Agreement by the Purchaser, the Funds are prepared to effect the
transactions required to occur on the day before the Closing and on the Closing
Date and the Purchaser is unable to effect the Closing due to the Purchaser not
having available all necessary financing, subject to the right of the Purchaser
to delay the Closing Date pursuant to the proviso in Section 1.2.
SECTION 6.2 Effect of Termination. In the events of the termination
of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except as
set forth in Section 4.3, in Section 7.1 and in the immediately succeeding
sentence; provided, however, that nothing herein shall
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relieve any party from liability for any willful and material breach hereof. The
Purchaser shall be liable to the Funds for all direct, actual damages (and all
expenses incurred by the Funds and the Company in connection with the
preparation, negotiation and execution of this Agreement and the taking of all
actions contemplated hereby) incurred by the Funds due to the failure of the
Closing to occur if this Agreement is terminated pursuant to Section 6.1(f).
SECTION 6.3 Reports. In the event this Agreement is terminated
pursuant to Section 6.1(c), Purchaser shall deliver to the Funds copies of all
written environmental and engineering reports prepared by Purchaser's
consultants.
SECTION 6.4 Fees and Expenses. Except as provided in this Section
6.4 and Section 6.2, the Purchaser and the Funds shall each bear their own fees
and expenses in connection with this Agreement and the transactions contemplated
hereby. Without limiting the foregoing, the Funds shall pay all fees and
expenses of Xxxxxxx Xxxxxxx & Xxxxxxxx, counsel to the Funds, incurred in
connection with the preparation, negotiation and execution of this Agreement and
the consummation of the transactions contemplated hereby.
SECTION 6.5 Amendment. This Agreement may be amended, supplemented
or otherwise modified by the parties hereto only by written agreement executed
and delivered by duly authorized officers of the respective parties.
SECTION 6.6 Waiver. Any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (c) waive compliance with
any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Survival of Representations, Warranties and Agreements;
Indemnification.
(a) Survival. The representations and warranties and agreements in
Article IV of the Funds and the Purchaser in this Agreement shall survive the
Closing until the one year anniversary of the Closing Date, provided that,
notwithstanding the foregoing, (i) the representations and warranties contained
in Sections 3.1(k), 3.1(l)(v), 3.1(s)(i), (iii), (iv), (vi) and (viii), 3.1(t)
and 3.2(f) shall terminate on the Closing Date, (ii) the representations and
warranties contained in Sections 3.1(w), 3.1(x), 3.1(y), 3.1(z), 3.1(aa) and
3.2(i) (collectively, the "Non-
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Terminating Representations") shall survive the Closing and shall not terminate
and (iii) the agreements in Sections 4.3(c) (as it applies to Section 4.3(b)
only), 4.4, 4.5, 4.10, 4.11, 4.12, 4.18 and 4.19 shall survive the Closing and
shall not terminate (collectively, the "Non-Terminating Pre-Closing
Agreements"). No party shall have any liability or obligation of any nature with
respect to any representation, warranty or pre-Closing agreement after the
termination thereof.
(b) Indemnification by Purchaser. Subject to Section 7.1(d), (e),
(f) and (h), from and after the Closing Date, the Purchaser shall indemnify and
hold harmless the Funds, the Funds' Affiliates, each of their respective
directors, officers, employees and agents, and each of the heirs, executors,
successors and assigns of any of the foregoing from and against any and all
damages, claims, losses, expenses, costs, obligations and liabilities including
without limiting the generality of the foregoing, liabilities for all reasonable
attorneys' fees and expenses (including attorney and expert fees and expenses
incurred to enforce the terms of this Agreement in the event of a breach)
(collectively, "Losses and Expenses") suffered or incurred by any such
indemnified Person arising from, relating to or otherwise in respect of, (i) any
breach of, or inaccuracy in, any representation or warranty of the Purchaser
contained in this Agreement or in the certificate delivered pursuant to Section
5.3(a) of this Agreement and (ii) any breach of any agreement of the Purchaser
contained in this Agreement.
(c) Indemnification by the Funds. Subject to Sections 7.1(d), (e),
(f) and (h), from and after the Closing Date, the Funds shall, jointly and
severally, indemnify and hold harmless the Purchaser, Purchaser's Affiliates,
each of their respective directors, officers, employees and agents, and each of
the heirs, executors, successors and assigns of any of the foregoing from and
against any and all Losses and Expenses suffered or incurred by any such
indemnified Person arising from, relating to or otherwise in respect of, (i) any
breach of, or inaccuracy in, any representation or warranty of the Funds
contained in this Agreement or in the certificates delivered pursuant to Section
5.2(a) of this Agreement, (ii) any breach by the Funds of Section 4.1 of this
Agreement or the related provisions of the certificate delivered pursuant to
Section 5.2(b) other than a breach of any provision of clause (a) through (m)
(which shall be subject to indemnification pursuant to clause (iii) hereof),
(iii) any breach of any agreement of the Funds contained in this Agreement
except for matters covered by clause (ii), and (iv) for the matters (and in the
manner) set forth on Schedule 7.1(c).
(d) Limitations on Indemnification. Neither the Purchaser nor the
Funds shall have any obligation to indemnify any indemnified person pursuant to
clause (i) of Section 7.1(b) or clause (i) of Section 7.1(c) (other than with
respect to a Non-Termination Representation, which shall not be subject to this
Section 7.1(d)) unless the aggregate of all Losses and Expenses in respect of
all matters subject to such claims would, but for this section, exceed
$2,500,000, in which case the Purchaser or the Funds, respectively, shall,
subject to the immediately succeeding sentence, be liable for all amounts in
excess of such $2,500,000 threshold; provided, however, that no threshold shall
apply to breaches of representations contained in Section 3.1(c)(i) as to the
percentage ownership of capital stock of those corporate entities identified by
the footnotes on Schedule 3.1(c)(i). The maximum aggregate liability of the
Purchaser on the one hand and the Funds, collectively, on the other for all
Losses and Expenses incurred by all
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indemnified parties for all matters subject to clause (i) of Section 7.1(b) or
clause (i) of Section 7.1(c) (in each case other than with respect to
Non-Terminating Representations, which shall not be subject to this Section
7.1(d)), as applicable, is $5,000,000 in the aggregate for all matters and
neither the Purchaser nor the Funds shall have any obligation or liability
pursuant to such clauses in excess of such amount.
(e) 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. The
indemnifying Person shall have twenty (20) days after receipt of such notice to
undertake, through counsel of its own choosing, subject to the reasonable
approval of such indemnified Person, 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. If
the indemnifying Person shall assume the defense of a claim, it shall not settle
or compromise such claim without the prior written consent of the indemnified
Person (which consent shall not be unreasonably withheld) unless (i) the
indemnifying Person agrees in writing that the indemnified Person is entitled to
indemnification in respect of such claim pursuant to this Section 7.1, (ii) such
settlement or compromise 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 (iii) such settlement or compromise does not involve
the imposition of equitable remedies or the imposition of any obligations on
such indemnified Person other than financial obligations for which such
indemnified party will be indemnified hereunder. If the indemnifying Person
shall assume the defense of a claim, all fees and expenses of the indemnifying
Person's counsel and other costs of defending such claim shall be borne by the
indemnifying party; provided that the fees of any separate counsel retained by
the indemnified Person shall be borne by such indemnified Person unless there
exists a conflict between them as to their respective legal defenses (other than
one that is of a monetary nature), in which case the indemnified Person shall be
entitled to retain separate counsel, the reasonable fees and expenses of which
shall be reimbursed by the indemnifying Person. If the indemnifying Person does
not notify the indemnified Person within twenty (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, the indemnified Person shall have the right to
defend the claim and shall not settle or compromise the claim without the
consent of the indemnifying party (which consent will not be unreasonably
withheld) unless the indemnifying party agrees in writing that it is not
entitled to any indemnities pursuant to this Section 7.1.
(f) Termination of Indemnification. The obligations to indemnify and
hold harmless a Person pursuant to Section 7.1(b) or 7.1(c) shall terminate when
the applicable representation, warranty or agreement terminates pursuant to
Section 7.1(a); provided, however,
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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, after
the Closing Date but 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; provided, further, that a claim
for any item under Section 3.1(q) shall not be deemed made with respect to any
Tax until such time as the Purchaser receives written notice from a taxing
authority asserting that such Tax is due or, if earlier, such time as Purchaser,
its Subsidiary or Investment Entity has actually paid such Tax (but such claim
will be deemed made only to the extent of such payment).
(g) Exclusive Remedy. After the Closing Date, the indemnification
provided pursuant to this Section 7.1 shall be the sole and exclusive remedy of
any party hereto for any Losses and Expenses arising out of or relating to any
breach of any representation, warranty or agreement contained in this Agreement.
(h) Calculation of Loss and Expenses. In the event of any breach of
representation and warranty contained in Section 3.1 or Section 3.2, the amount
of Losses and Expenses arising from, relating to or otherwise in respect of such
breach shall be determined based on the entire amount of any such Losses and
Expenses, not merely the portion above any "Material Adverse Effect" or other
materiality qualifiers contained in the applicable representation and warranty.
SECTION 7.2 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in Person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
if to the Purchaser:
Sunstone Hotel Investors, Inc.
000 Xxxxx xx Xxxxxxxxxx
Xxxxx 000
Xxx Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Alter
with a copy to:
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
0000 XxxXxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxx X. Xxxxx, Esq.
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if to the Company:
Xxxxxx Realty Corporation
00 Xxxxxx Xxxxxx XX
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxxx X'Xxxxx
with a copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxxxx Xxxxxxxxx, Esq.
if to the Funds:
Xxxxxxxxx Real Estate Fund I, X.X.
Xxxxxxxxx Real Estate Co-Investment
Partnership I, L.P.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxxx Xxxx
with a copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxxxx Xxxxxxxxx, Esq.
SECTION 7.3 Certain Definitions.
(a) For purposes of this Agreement, the term:
"Affiliate" of a specified Person means a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified Person.
"Capital Expenditures Budget" means the Company's capital
expenditures budget, dated May 14, 1997, delivered by the Company to Purchaser
on the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Company Material Adverse Effect" means a material adverse effect on
the business, assets, results of operations, financial condition or prospects
(based on the conduct of the Company's, its Subsidiaries' and its Investment
Entities' business as currently conducted) of the Company and its Subsidiaries
taken as a whole, or on the ability of the Company to perform its obligations
hereunder.
"Construction Contract" means any construction contract, architect's
and/or engineer's agreement, construction management contract, design contract,
subcontract, and other similar type of agreement, together with all supplements,
amendments, modifications, general conditions, change orders and addenda thereto
entered into by or on behalf of any Property Owner (as hereinafter defined) or
tenant under any Space Lease (where the Company, its Subsidiaries or its
Investment Entity is such tenant under any Space Lease), or its predecessors-
in-interest, in connection with the construction, rehabilitation or renovation
of any of the Properties or any part thereof or the installation of any
Improvements on any of the Properties or any part thereof and which in each
instance provides for the payment of $250,000 or more or provides for payment on
a "cost plus" basis.
"Disqualifying Asset" means assets other than "real estate assets"
within the meaning of Section 856(c)(6)(B) of the Code.
"Environmental Claims" refers to any written complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter or other written communication
from any Governmental Entity or the commencement of any litigation by any third
party, in each case involving violations of Environmental Laws or Releases of
Hazardous Materials.
"Environmental Laws" includes the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as
amended; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et
seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., as amended;
the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; and any other
federal, state, local or municipal laws, statutes, regulations, rules or
ordinances imposing liability or establishing standards of or requirements for
conduct for protection of the environment, which standards or requirements are
now in effect.
"Environmental Report" means any environmental consultant's report,
study or assessment that addresses actual or potential noncompliance with, or
actual or potential liability under Environmental Law on the part of the
Company, any of its subsidiaries and/or any of its Investment Entities.
"Existing Indebtedness" means, with respect to each Existing Loan,
the indebtedness borrowed thereunder (including all unpaid principal and accrued
interest and all other penalties, charges, and other amounts due and payable
under each such Existing Loan as of June 29, 1997).
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"Existing Loan" means the loans set forth on Attachment
3.1(m)(i)(G).
"Franchise Agreements" means the Franchise Agreements listed on
Schedule 3.1(m)(i)(H) under the heading "Franchise Agreements", together with
all supplements, amendments and modifications thereto.
"GAAP" shall mean the generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession in the United States.
"Governmental Entity" means the United States of America, any state
or local government, any political subdivision of either, any agency,
department, commission, board, bureau or instrumentality of any of them, or any
quasi-public agency established by any of the foregoing including, without
limitation, any insurance rating organization or board of fire underwriters
which exercises jurisdiction over the Premises.
"Governmental Regulations" means any laws, orders, judgments,
decrees, ordinances, rules, requirements, resolutions, and regulations, now or
hereinafter existing (including, without limitation, those relating to land use,
subdivision, zoning, environmental, hazardous substances, employment practices,
occupational health and safety, water and building and fire codes) of any
Governmental Entity.
"Ground Lease" means each of the leases, together with all
supplements, amendments and modifications thereto, listed on Schedule
3.1(m)(i)(I) under the heading "Ground Lease."
"Hazardous Materials" means any chemical, material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "regulated substances," "extremely hazardous
waste," "restricted hazardous waste," "toxic substances," "contaminants,"
"pollutants," "medical waste," "biohazardous or infectious waste," "solid
waste," "special waste," or words of similar import under any applicable
Environmental Law. Without limiting the generality of the foregoing, the term
"Hazardous Materials" shall include, to the extent such materials are regulated
by any Environmental Law (a) any oil, flammable substances, explosives,
radioactive materials, hazardous wastes, chemicals, or substances, or toxic
wastes; (b) friable asbestos; (c) urea formaldehyde foam insulation; (d)
transformers or other equipment which contain polychlorinated biphenyls; and (e)
Radon gas.
"Hotel Property" means Real Property which includes a hotel.
"Improvements" means all buildings, improvements, structures and
fixtures located on the Land or any part thereof.
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"Intangible Personal Property" means all Intangible Personal
Property owned or possessed by any Property Owner and used in connection with
the ownership, operation, leasing, occupancy or maintenance of any of the
Properties, including, without limitation, (a) such Property Owner's right to
use any tradenames, (b) the Licenses and Permits, (c) any escrow accounts, (d)
all rights, privileges and appurtenances pertaining to any of the Properties,
including, without limitation, air-rights, development rights and utility
rights, (e) general intangibles, (f) all books, plans and records of the
Company, its Subsidiaries and each Property Owner, and (g) any unpaid award for
taking by condemnation or any damage to the Land by reason of a change of grade
or location of or access to any street or highway.
"Knowledge" means, with respect to a Person the actual knowledge,
after having made reasonable inquiry of its executive officers and directors.
"Land" means, collectively, each parcel of Real Property shown on
the Survey for such parcel of Real Property and denoted thereon as being owned
or leased by the applicable Property Owner.
"Leasehold Estates" means, collectively, each Leasehold Estate
created pursuant to a Ground Lease with respect to a parcel of Land related
thereto.
"Licenses and Permits" means, collectively, all licenses (including,
without limitation, liquor licenses and casino licenses), permits,
authorizations, certificates of occupancy, approvals, dedications, subdivision
approvals and entitlements issued, approved or granted by any Governmental
Entity or otherwise in connection with any of the Properties; and all licenses,
consents, easements, rights of way and approvals required from private parties
to make use of the existing utilities and to insure vehicular and pedestrian
ingress and egress to any of the Properties.
"Liens" means any mortgage, deed of trust, pledge, security
interest, financing statement, encumbrance, lien, judgment, segregation, charge
or deposit arrangement or other arrangement having the practical effect of any
of the foregoing and shall include the interest of a vendor or lessor under any
conditional sale agreement, capitalized lease or other title retention
agreement.
"Management Contracts" means the management contracts listed on
Schedule 3.1(m)(i)(H) together with all supplements, amendments and
modifications thereto.
"material liability" means the expenditure of more than $75,000. The
definition of material liability for purposes of this Agreement is solely for
the purposes where such term is specifically used and shall not be relied upon
to determine and shall not be used as evidence of the appropriate standard of
"materiality" in the context of the determination of whether a Company Material
Adverse Effect has occurred or whether any other "materiality" qualifier has
been satisfied.
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"Non-Core Assets" shall mean the assets set forth on Schedule 4.22.
"Permitted Liens" means, subject to the terms and conditions of the
second sentence of this definition, (a) liens, levies and assessments (it being
understood that in the case of levies and assessments, such matters are
recurring and generally reflected in the Company's financial statements) for
current taxes, sewer charges, water charges or common charges of any condominium
association, in all cases, not yet due and payable, (b) rights of (x) tenants or
persons in possession as listed on Schedule 3.1(m)(i)(I) and (y) tenants or
persons in possession pursuant to immaterial Space Leases, (c) the matters and
items listed on the Title Insurance Policies and Title Reports set forth on
Schedule 3.1(s)(ix) excluding any matters or items of the type referenced in
clause (E) or (F) of the last sentence of this definition, (d) the matters and
items shown on the Surveys, which Surveys have been made available to the
Purchaser prior to the date hereof, (e) matters that would be disclosed by an
accurate survey of the Land done after the date of the respective Surveys, (f)
as to Personal Property, liens of carriers and warehousemen incurred in the
ordinary course of business for sums not yet due and liens arising under the
loan documents described on Schedule 3.1(m)(i)(F) and (G) and, (g) as to
Personal Property, liens incurred or deposits made in the ordinary course of
business in connection with workers compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, performance and
return-of-money bonds and similar obligations (exclusive of obligations for the
payment of borrowed money), (h) easements, covenants and restrictions placed of
record subsequent to the date of the Title Policies and Title Reports described
on Schedule 3.1(s)(ix), (i) matters placed of record subsequent to the date of
the Title Policies and Title Reports described on Schedule 3.1(s)(ix) affecting
the title of any owner of the Land covered by the Ground Leases, provided that
such matter is subject and subordinate in all respects to the tenants interest
under applicable Ground Lease. Notwithstanding the foregoing, a matter or item
described above in clauses (e) or (h) above (collectively, the "Excludable
Liens") shall not be a "Permitted Lien" (1) if any such Excludable Lien (A)
(excluding the terms of any of the Ground Leases and any mortgages or deeds of
trust or other collateral loan document) provides for a condition or right of
reverter or other provision for forfeiture under which the fee or leasehold
title, as the case may be, or the possessory rights of the Company, any of its
Subsidiaries or its Investment Entities can be cut off, subordinated or
otherwise disturbed as a result of (w) a presently existing default thereunder,
(x) notice or the passage of time or both (excluding in the case of default or
violation thereunder subsequent to the Effective Date), (y) the consummation of
the transactions contemplated by this Agreement (other than the transactions
contemplated by Section 1.5) or (z) the current use of the Real Property, (B) is
violated by the existence of the existing Improvements, (C) prohibits or impairs
in any material respect the present use and enjoyment of the Real Property, or
(D) causes the representations and warranties set forth in Section 3.1(s)(viii)
to be untrue or (E) if any such Excludable Lien relates to financing or
indebtedness not set forth on Schedule 3.1(m)(i)(F) and (G) or (F) if any such
Excludable Lien relates to a monetary judgment, or (G) if any such Excludable
Lien has been or is voluntarily placed of record by the Company, any Subsidiary
or any Investment Entity subsequent to the date of the Title Policies and Title
Reports described on Schedule 3.1(s)(ix) and (2) if a reputable national title
insurance company shall not be ready, willing and able to issue affirmative
title
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insurance (without additional cost or premium and otherwise reasonably
acceptable to Purchaser) insuring against the matters described in clauses (A),
(B) and (C) above, as applicable, with respect to any such Excludable Lien.
"Person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act).
"Personal Property" means, collectively, the Tangible Personal
Property and the Intangible Personal Property.
"Properties" or "Property" means the Real Property, any premises
demised to the Company or any of its Subsidiaries or its Investment Entities
under any Space Lease and the Personal Property.
"Property Contracts" means, collectively, Construction Contracts,
Service Contracts, the Franchise Agreements and the Management Contracts
relating to any of the Properties.
"Property Owner" means the owners or tenants, as the case may be (as
set forth on Schedule 3.1(s)(i) and (ii) hereto), of each parcel of Real
Property.
"Purchaser Material Adverse Effect" means a material adverse effect
on (i) the business, properties, assets, results of operations or financial
condition of the Purchaser and its Subsidiaries taken as a whole, or (ii) on the
ability of the Purchaser to perform its obligations hereunder or under the
Registration Rights Agreement.
"Real Property" means the Land, the Leasehold Estates and the
Improvements.
"REIT Qualification" means the Purchaser's satisfaction of the
requirements of Section 856(a) of the Code such that the Purchaser will continue
to be treated as a real estate investment trust for federal income tax purposes.
"Release" means any spilling, leaking, pumping, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing of Hazardous
Materials (including the abandonment or discarding of barrels, containers or
other closed receptacles containing Hazardous Materials) into the environment.
"Required Consents" means the consents set forth on Schedule 7.3(a).
"Service Contract" means any service agreement, brokerage commission
agreement, maintenance contract, contract for the purchase or delivery of
services, materials, goods, inventory or supplies, cleaning contracts, equipment
rental agreements, equipment leases or leases of Personal Property (other than
the Franchise Agreements and the Management Agreements),
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together with all supplements, amendments and modifications thereto, relating to
any of the Properties or any part thereof; provided, however, the term "Service
Contract" shall not include any Service Contract which (i) provides for the
payment of $100,000 per annum or $250,000 in the aggregate or less, or (ii) is
terminable without penalty on 90 days' or less prior written notice.
"Space Leases" means all material leases, licenses, subleases,
rental agreements or occupancy agreements, together with all supplements,
amendments and modifications thereto, entered into by the Company or its
Subsidiaries or Investment Entities.
"Subsidiary" or "Subsidiaries" of the Company, the Purchaser or any
other Person means any corporation, partnership, joint venture or other legal
entity of which the Company, the Purchaser or such other Person, as the case may
be (either alone or through or together with any other Subsidiary), owns or has
the right to acquire, directly or indirectly, 50% or more of the stock or other
equity interests the holder of which is generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity, and specifically includes Park Hotels L.C.
"Surveys" means the Surveys, plats, plot plans and floor plans
listed on Schedule 3.1(s)(ix).
"Tangible Personal Property" means the items of tangible personal
property consisting of all furniture, furnishings, fixtures, equipment,
machinery and other Personal Property of every kind and nature located on or
used or useful in the operation of any of the Properties, including, without
limitation, as lessee with respect to any such Tangible Personal Property.
"Title Insurance Policies" means any title insurance policy insuring
title (either fee simple or leasehold) vested in the Company or one of its
Subsidiaries or Investment Entities, as the case may be.
"Title Reports" means the title reports, title commitments and title
opinions listed under the heading "Title Reports" on Schedule 3.1(s)(ix).
(b) The following terms shall have the meaning specified in the
indicated Section of this Agreement:
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Term Section
ADA.................................................................. 3.1
Additional Contribution.............................................. 4.9
Adjusted 1999 EBITDA................................................. 2.1
Adjusted Valuation Amount............................................ 2.1
Agreement Recitals Amendment.........................................4.11
Asset Sales.......................................................... 2.1
Capital Expenditures................................................. 2.1
Capital Expenditures Reserve......................................... 2.1
Cash Consideration .................................................. 1.3
Certificate of Designation........................................... 1.3
Closing.............................................................. 1.2
Closing Date......................................................... 1.2
Collective Bargaining Agreement...... ............................... 4.1
Company..........................................................Recitals
Company Audited Financial Statements..................................3.1
Company Common Stock.............................................Recitals
Company Plans.........................................................3.1
Company Preferred Stock...............................................3.1
Company Securities....................................................3.1
Company Unaudited Financial Statements................................3.1
Completed in Full.....................................................2.1
Condemnation..........................................................2.1
December Qualifying Project...........................................2.1
Distribution..........................................................1.4
Earn-Out Payment Amount...............................................2.1
Earn-Out Payment Date.................................................2.1
Earn-Out Ratio........................................................2.1
EBITDA................................................................2.1
Employees............................................................ 4.4
ERISA.................................................................3.1
Exchange Act..........................................................3.2
Excess Lessee Adjusted EBITDA.........................................2.1
Existing Lease........................................................2.1
Fair Market Value.....................................................2.1
FASB..................................................................3.1
Funds............................................................Recitals
Funds' Dispute Notice.................................................2.1
HSR Act...............................................................3.1
Independent Accounting Firm...........................................2.1
Interest..............................................................1.3
IRS...................................................................3.1
Initial Lock-Up Period...............................................4.10
Investment Entities...................................................3.1
KPMG..................................................................1.4
Lessee................................................................2.1
Lessee 1999 Adjusted Portfolio EBITDA.................................2.1
Lessee 1999 Portfolio Revenue.........................................2.1
Losses and Expenses...................................................7.1
Material Contracts....................................................3.1
Manager Qualifying Project............................................2.1
March Qualifying Project..............................................2.1
MBCA..................................................................1.1
Merger...........................................................Recitals
1999 Capital Expenditure Reserve......................................2.1
1999 EBITDA...........................................................2.1
1999 Room Revenues....................................................2.1
1997/1998 Room Revenues...............................................2.1
Notes.................................................................4.9
Other Revenues........................................................2.1
Ownership Interests...................................................3.1
Portfolio Hotels......................................................2.1
Purchaser........................................................Recitals
Preliminary Earn-Out Payment..........................................2.1
Preliminary Earn-Out Payment Amount...................................2.1
Preliminary Earn-Out Ratio............................................2.1
Purchaser Common Stock................................................1.3
Purchaser Common Stock Consideration..................................1.3
Purchaser Convertible Preferred Stock.................................1.3
Purchaser Convertible Preferred Stock Consideration...................1.3
Purchaser Preferred Stock.............................................3.2
Purchaser's Earn-Out Calculation Certificate..........................2.1
Qualifying Project....................................................2.1
Returned Portfolio Hotels.............................................2.1
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Term Section
RevPur Index..........................................................2.1
Room Revenues.........................................................2.1
Sale Proceeds.........................................................2.1
SEC Reports...........................................................3.2
Securities Act........................................................1.3
September Qualifying Project..........................................2.1
Shares...............................................................4.10
Stock............................................................Recitals
Stock Purchase...................................................Recitals
Stock Purchase Consideration..........................................1.3
Taxes.................................................................3.1
Tax Return............................................................3.1
Title IV Plan.........................................................3.1
Trading Period........................................................2.1
Xxxxxxxxx Co-Investment Funds....................................Recitals
Xxxxxxxxx Fund...................................................Recitals
SECTION 7.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 7.5 Entire Agreement; Assignment. This Agreement constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
This Agreement shall not be assigned by operation of law or otherwise, except
that the Purchaser and the Purchaser may assign all or any of their respective
rights and obligations hereunder to any direct or indirect wholly owned
Subsidiary or Subsidiaries of the Purchaser or to the Lessee or its wholly-owned
Subsidiary or Subsidiaries; provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 7.6 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 7.7 Governing Law; Submission to Jurisdiction; Waiver of
Jury Trial; Specific Performance. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
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(b) Each Party hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal
action or proceeding relating to this agreement and any related documents
to which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from
any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives trial by jury and any objection that it
may now or hereafter have to the venue of any such action or proceeding in
any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth in subsection 7.2 or at
such other address of which the company and each shareholder shall have
been notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to xxx in any other jurisdiction.
(c) Each party to this agreement hereby irrevocably and
unconditionally waives trial by jury in any legal action or proceeding arising
out of or relating to this Agreement or the transactions relating hereto.
(d) The Purchaser and the Funds agree that any breach of Article I
would cause irreparable injury to the other party and that money damages will be
an inadequate remedy for any breach or threatened breach of the agreements
described in Article I. The Purchaser and the Funds agree that, in the event of
a breach or threatened breach by the Company or the Funds of the agreements
described in Article I, the Purchaser shall, in addition to other rights and
remedies existing in its favor, be entitled to specific performance and/or
injunctive relief in order to enforce, or prevent any violations of, the
provisions of Article I (without the posting of a bond or other security). The
Purchaser and the Funds agree that, in the event of a breach or threatened
breach by the Purchaser of the agreements described in Article I, the Funds
shall, in addition to other rights and remedies existing in their favor, be
entitled to specific performance and/or injunctive relief in order to enforce,
or prevent any violations of, the provisions of Article I (without the posting
of a bond or other security).
SECTION 7.8 Interpretation. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of, or
a Schedule to, this Agreement unless otherwise indicated. The table of contents
and headings contained in this
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Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 7.9 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
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SECTION 7.10 No Recourse. None of the general partners or limited
partners of the Funds will have any personal liability with respect to any of
the obligations or liabilities of the Funds under this Agreement and the sole
recourse of the Purchaser for any such obligations or liabilities will be to the
Funds themselves.
IN WITNESS WHEREOF, the Purchaser, the Purchaser, the Company and
the Fund have caused this Agreement, as amended and restated, to be executed by
their respective officers thereunto duly authorized, all as of the date written
above.
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ Xxxxxx X. Alter
----------------------
Xxxxxx X. Alter
President
XXXXXXXXX REAL ESTATE FUND I, L.P.
By: Xxxxxxxxx Real Estate Partners Management,
L.L.C., its general partner
By: Xxxxxxxxx Real Estate Partners, L.L.C., its
managing member
By: /s/ Xxxxxxxx X. Xxxx
----------------------
Xxxxxxxx X. Xxxx
Managing Principal
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XXXXXXXXX REAL ESTATE CO-INVESTMENT
PARTNERSHIP I, L.P.
By: Xxxxxxxxx Real Estate Partners Management,
L.L.C., its general partner
By: Xxxxxxxxx Real Estate Partners, L.L.C., its
managing member
By: /s/ Xxxxxxxx X. Xxxx
---------------------
Xxxxxxxx X. Xxxx
Managing Principal
XXXXXX REALTY CORPORATION
By: /s/ Xxxxxx X'Xxxxx
-----------------------
Xxxxxx X'Xxxxx
Chief Executive Officer
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