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Exhibit 14
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is made and entered
into as of July 12, 1999, by and among SUNSTONE HOTEL INVESTORS, L.P., a
Delaware limited partnership ("Seller Partnership"), SUNSTONE HOTEL INVESTORS,
INC., a Maryland corporation ("Seller"), SHP ACQUISITION, L.L.C., a Delaware
limited liability company ("Parent"), and FIDELITY NATIONAL TITLE INSURANCE
COMPANY, a California corporation, as escrow agent (the "Escrow Agent").
Each of Seller, Seller Partnership, Parent and the Escrow Agent are referred to
individually herein as a "Party" and are referred to together herein as the
"Parties".
WITNESSETH:
WHEREAS, Seller, SHP Investors Sub, Inc., a Maryland
corporation and a wholly-owned subsidiary of Parent (the "Buyer"), and Parent
have entered into an Agreement and Plan of Merger dated of even date herewith
(the "Merger Agreement") pursuant to which Buyer will be merged into Seller;
WHEREAS, Seller conducts substantially all of its operations
through Seller Partnership, and Seller Partnership, Parent and SHP Acquisition
Sub, LP, a Delaware limited partnership and a wholly-owned subsidiary of Parent,
have entered into an Agreement and Plan of Merger of even date herewith (the
"Partnership Merger Agreement") pursuant to which SHP Acquisition Sub, L.P. will
be merged into Seller Partnership;
WHEREAS, Section 4.7 of the Merger Agreement requires the
Buyer to deliver cash in the amount of $25,000,000 (the "Cash Collateral") to
the Escrow Agent, to be held as security for the payment of liquidated damages
which may become payable by Buyer under certain circumstances set forth in
Section 7.2 of the Merger Agreement;
WHEREAS, Section 4.7 of the Merger Agreement provides that the
Buyer, at its election, may provide to Escrow Agent, in lieu of or in
substitution for the Cash Collateral, a letter of credit substantially in the
form of Attachment A (the "Letter of Credit") with the Escrow Agent as the
beneficiary thereof, with such changes
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as shall be reasonably satisfactory to Seller, from Nationsbank, N.A., or
another bank reasonably satisfactory to Seller, in substitution of the Cash
Collateral; and
WHEREAS, Parent, Seller and Seller Partnership wish to appoint
the Escrow Agent as escrow agent to hold, invest and disburse the Cash
Collateral and to deliver and/or draw upon the Letter of Credit, and the Escrow
Agent wishes to accept such appointment, upon the terms and conditions set forth
below.
NOW, THEREFORE, the Parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and
not otherwise defined shall have the meanings given them in the Merger
Agreement.
2. Collateral. The Escrow Agent hereby acknowledges receipt of
the Letter of Credit and shall hold the Letter of Credit in accordance with the
terms of this Agreement. In the event Cash Collateral is substituted for the
Letter of Credit, the Escrow Agent shall hold the Cash Collateral in accordance
with the terms of this Agreement in a segregated trust account designated as the
"SHI Cash Collateral Account" or in an account having a similar designation, and
shall invest the Cash Collateral in accordance with Section 5 hereof pursuant to
the written instruction of Parent.
3. Intentionally Omitted.
4. Release. (a) The Escrow Agent shall distribute the Cash
Collateral, deliver the Letter of Credit (in cases where the Letter of Credit is
to be delivered to Parent), or draw on the Letter of Credit and distribute the
proceeds thereof (in cases where the proceeds of the Letter of Credit is to be
delivered to Seller), as applicable and as directed, only as follows:
(i) to such party or parties as directed in a joint written
certificate executed by both Seller and Parent; or
(ii) to such party or parties as directed in a unilateral
written certificate executed by Seller or Parent (each, a "Unilateral
Certificate"), provided that the Escrow Agent has complied with the
terms of Section 4(b)
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below and has not received a Notice of Dispute (as defined below)
within the time period set forth in Section 4(b) below. Any Unilateral
Certificate shall state the amount to be distributed and the Section of
the Merger Agreement under which such distribution is authorized.
(b) Promptly after receipt of a Unilateral Certificate
delivered to the Escrow Agent under Section 4(a)(ii) above, the Escrow Agent
shall deliver to (i) Seller in the case of a Unilateral Certificate delivered by
Parent or (ii) Parent in the case of a Unilateral Certificate delivered by
Seller, a copy of the Unilateral Certificate. Seller or Parent, as applicable,
shall have a period of ten (10) days after its receipt of such copy of the
Unilateral Certificate within which to deliver to the Escrow Agent a notice (a
"Notice of Dispute") disputing distribution as provided in the Unilateral
Certificate. If Seller or Parent, as applicable, fails to deliver a Notice of
Dispute within such ten (10) day period, such party shall be deemed to have
consented to the distribution provided in the applicable Unilateral Certificate.
If Seller or Parent, as applicable, timely delivers a Notice of Dispute to the
Escrow Agent, the Escrow Agent, upon receipt of such Notice of Dispute, shall
give prompt notice thereof to the party which had delivered the applicable
Unilateral Certificate, and the Escrow Agent shall not make any disbursements
except upon receipt of the joint written instruction of Seller and Parent or a
final, nonappealable order of a court of competent jurisdiction.
(c) Notwithstanding anything to the contrary herein, in the
event that the Escrow Agent is holding the Letter of Credit in escrow by the
date which is 15 days prior to the expiry date of the Letter of Credit (or the
first business day thereafter if such date is not a business day), Escrow Agent
shall draw on the full amount of the Letter of Credit and hold the proceeds
thereof in escrow as Cash Collateral unless otherwise directed in a joint
written certificate by Seller and Parent, and neither Seller nor Parent shall
seek to enjoin either (i) a draw on the Letter of Credit made in accordance with
this Section 4(c) or (ii) payment by the issuer on the Letter of Credit with
respect to such draw.
5. Investment of Cash Collateral. (a) Any monies held as Cash
Collateral shall be invested by the Escrow Agent, to the extent permitted by law
and as directed in writing by Parent, in (i) obligations having a maturity date
of 30 days or less issued or guaranteed by the United States of America or any
agency or instrumentality thereof, (ii) obligations having a maturity date of 30
days or less
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(including certificates of deposit and bankers' acceptances) of banks
which at the date of their last public reporting had total assets in
excess of $500 million, (iii) commercial paper having a maturity date
of 30 days or less rated at least A-1 or P-1 or, if not rated, issued
by companies having outstanding debt rated at least AA or Aa, and/or
(iv) money market mutual funds invested primarily in the securities
described in the foregoing clauses (i), (ii) and (iii).
(b) Escrow Agent shall pay to Parent, on the first day of each
calendar month and on the date of disbursement of all of the Cash Collateral,
any interest earned on the Cash Collateral.
6. Fees and Expenses. Seller and Seller Partnership shall be
jointly and severally liable for the fees of the Escrow Agent, including, but
not limited to, reasonable legal fees and expenses for the services rendered by
the Escrow Agent hereunder and for its attorney's fees and expenses incurred in
connection with the preparation of this Agreement. In furtherance of the
foregoing, Seller and Seller Partnership agree to pay or reimburse the Escrow
Agent for the Escrow Agent's reasonable compensation for its normal services
hereunder and the preparation of this Agreement in accordance with the fee
schedule attached hereto as Attachment B. The Escrow Agent shall be entitled to
reimbursement on demand for all expenses incurred in connection with the
administration of the escrow created hereby that are in excess of its
compensation for normal services hereunder, including, without limitation,
payment of any legal fees and expenses incurred by the Escrow Agent in
connection with the resolution of any claim by any Party hereunder.
7. Limitation of Escrow Agent's Liability. (a) Neither the
Escrow Agent nor any of its directors, officers or employees shall incur
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other documents
believed by it to be genuine and duly authorized, nor for other action or
inaction except its own willful misconduct or gross negligence; provided, that
with respect to the custody of the Cash Collateral, the Escrow Agent shall use
the standard care of customarily used by custodians of funds. The Escrow Agent
shall not be responsible for the validity or sufficiency of this Agreement and
shall not be responsible for any of the agreements referred to herein, including
the Merger Agreement and the Partnership Merger Agreement, but shall be
obligated only for the performance of such duties as are specifically set forth
in this
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Escrow Agreement. Without limiting the foregoing, the Escrow Agent (i) shall not
be obligated to inquire as to the accuracy of any calculations used in preparing
the Disbursement Certificate and (ii) shall have no obligation to inquire
whether Seller Partnership has the right to liquidated damages pursuant to the
Merger Agreement. In all questions arising under this Agreement, the Escrow
Agent may rely on the advice of counsel, including in-house counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent based on
such advice the Escrow Agent shall not be liable to anyone. The Escrow Agent
shall not be required to take any action hereunder involving any expense unless
the payment of such expense is made or provided for in a manner reasonably
satisfactory to it. The Escrow Agent shall not be liable for any losses
resulting from the investments made in accordance with this Agreement. In no
event shall the Escrow Agent be liable for indirect, punitive, special or
consequential damages.
(b) Seller and Seller Partnership shall jointly and severally
indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability or expense (including reasonable attorneys' fees and expenses)
incurred without gross negligence or willful misconduct on the part of the
Escrow Agent, arising out of or in connection with its carrying out of its
duties hereunder, including without limitation drawing on the Letter of Credit.
(c) Seller and Seller Partnership jointly and severally hereby
agree to assume any and all obligations imposed now or hereafter by any
applicable tax law with respect to the payment of amounts to be distributed
under this Agreement, and to indemnify and hold the Escrow Agent harmless from
and against any taxes, additions for late payment, interest, penalties and other
expenses, that may be assessed against the Escrow Agent in any such payment or
other activities under this Agreement (other than taxes on the net income of the
Escrow Agent attributable to the payment of fees hereunder). Seller and Seller
Partnership undertake to instruct the Escrow Agent in writing with respect to
the Escrow Agent's responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting in
connection with its acting as Escrow Agent under this Agreement. Seller and
Seller Partnership jointly and severally hereby agree to indemnify and hold the
Escrow Agent harmless from any liability on account of taxes, assessments or
other governmental charges, including without limitation the withholding or
deduction or the failure to withhold or deduct the same, and any liability for
failure to obtain proper
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certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Agreement, including costs and expenses (including reasonable legal fees
and expenses), interest and penalties.
8. Termination. This Agreement shall terminate upon the
disbursement by the Escrow Agent of all of the Cash Collateral or the full
amount of the Letter of Credit (except in accordance with Section 4(a)) in
accordance with this Agreement; provided, however, that the provisions of
Sections 6 and 7 shall survive such termination.
9. Notices. All notices, instructions and other communications
given hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered four business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid; or one business day after it is
sent via a reputable nationwide overnight courier service.
If to Seller or Seller Partnership: Sunstone Hotel Investors, Inc.
000 Xxxxx Xxxxxxxx
Xxx Xxxxxxxx, XX 00000
Attention: Chief Operating Officer
Fax: (000) 000-0000
Copy to: Altheimer & Xxxx
00 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. XxXxxx
Fax: (000-000-0000
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If to Parent: SHP Acquisition, L.L.C.
c/x Xxxxxxxxx Real Estate Partners, L.L.C.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxx X. Xxxx
Fax: (000) 000-0000
Copies to: Battle Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
and Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxxxxxx, Esq.
Xxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
and Xxxxxxxxx Partners L.L.C.
13155 Xxxx Road -- LB54
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxx, Esq.
Fax: (000) 000-0000
Fidelity National Title Insurance
If to the Escrow Agent: Company
0000 Xxxx Xxxxxx, Xxxxx 000,
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx
Fax: (000) 000-0000
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Any Party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the Party to
whom it was sent. Any Party may change the address to which notices,
instructions or communications are to be delivered by giving the other Parties
to this Agreement notice thereof in the manner set forth in this Section 9.
10. Successor Escrow Agent. In the event the Escrow Agent
becomes unavailable or unwilling to continue in its capacity hereunder, the
Escrow Agent may resign and be discharged from its duties or obligations
hereunder by delivering a resignation to the Parties to this Escrow Agreement,
not less than 60 days' prior to the date when such resignation shall take
effect. Seller may, upon three business days prior written notice to Parent,
appoint a successor Escrow Agent so long as such successor is a bank with assets
of at least $500 million. If, within such 60-day notice period, Seller provides
to the Escrow Agent written instructions with respect to the appointment of a
successor Escrow Agent and directions for the transfer of the Letter of Credit
or the Cash Collateral then held by the Escrow Agent to such successor, the
Escrow Agent shall act in accordance with such instructions and promptly
transfer the Letter of Credit or the Cash Collateral to such designated
successor. If no successor escrow agent is named by Seller within such notice
period, the Escrow Agent may apply to a court of competent jurisdiction for
appointment of a successor escrow agent.
11. General.
(a) Governing Law. This Agreement shall be governed by,
enforced under and construed in accordance with the laws of the State of New
York without regard to conflict-of-law principles.
(b) Counterparts. This Agreement may be executed in two or
more counterparts (which need not each be signed by all of the Parties hereto),
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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(c) Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the Parties with respect to the subject matter
hereof and supersedes all prior agreements or understandings, written or oral,
between the Parties with respect to the subject matter hereof.
(d) Waivers. No waiver by any Party hereto of any condition or
of any breach of any provision of this Escrow Agreement shall be effective
unless in writing. No waiver by any Party of any such condition or breach, in
any one instance, shall be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained herein.
(e) Amendment. This Agreement may be amended only by a written
instrument signed by the Parties hereto.
(f) Consent to Jurisdiction and Service. Each Party hereby
absolutely and irrevocably consents and submits to the jurisdiction of the
courts in the State of New York and of any federal court located in the state of
New York in connection with any actions or proceedings brought against such
Party by the Escrow Agent arising out of or relating to this Escrow Agreement.
In any such action or proceeding, each Party hereby absolutely and irrevocably
waives personal service of any summons, complaint, declaration or other process
and hereby absolutely and irrevocably agrees that the service thereof may be
made in accordance with the notice provisions of Section 9 hereof, directed to
such Party at its address set forth in Section 9 hereof.
(g) Force Majeure. No Party shall be responsible for delays or
failures in performance resulting from acts beyond its, his or her control. Such
acts shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of wars, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, computer viruses, power failures, earthquakes
or other disasters.
(h) Binding Effect, Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective Parties hereto and their heirs,
executors, successors and assigns.
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(i) Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (i) consents, waivers
and modifications which may hereafter be executed, and (ii) certificates and
other information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The Parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a Party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
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IN WITNESS WHEREOF, the Parties have duly executed this
Agreement as of the day and year first above written.
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Xxxxxxxx Xxxxxxx
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Name: R. Xxxxxxxx Xxxxxxx
Title: Chief Operating Officer
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Xxxxxxxx Xxxxxxx
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Name: R. Xxxxxxxx Xxxxxxx
Title: Authorized
Representative
SHP ACQUISITION, L.L.C.
By: /s/ Xxxx Xxxxxxxxxx
-----------------------------
Name: Xxxx Xxxxxxxxxx
Title: Manager
FIDELITY NATIONAL TITLE
INSURANCE COMPANY, as Escrow
Agent
By: /s/ P. Beverly
-----------------------------
Name: P. Beverly
Title: Vice President
