EXHIBIT 2.1
EXECUTION COPY
AGREEMENT
BY AND AMONG
CNL HOSPITALITY PROPERTIES, INC.
CNL ROSE ACQUISITION CORP.
RFS HOTEL INVESTORS, INC.
CNL ROSE ACQUISITION OP, LP
AND
RFS PARTNERSHIP, L.P.
DATED MAY 8, 2003
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGERS .........................................................2
SECTION 1.1. THE REIT MERGER..........................................2
SECTION 1.2. OP MERGER................................................2
SECTION 1.3. CLOSING..................................................2
SECTION 1.4. EFFECTIVE TIME...........................................2
SECTION 1.5. EFFECTS OF THE MERGERS...................................3
SECTION 1.6. CERTIFICATE OF INCORPORATION AND BY-LAWS OF
THE SURVIVING CORPORATION................................3
SECTION 1.7. DIRECTORS AND OFFICERS...................................3
SECTION 1.8. CERTIFICATE OF LIMITED PARTNERSHIP AND
PARTNERSHIP AGREEMENT....................................3
SECTION 1.9 RESERVATION OF RIGHT TO REVISE STRUCTURE.................3
ARTICLE II EFFECT OF THE MERGERS; EXCHANGE OF CERTIFICATES.....................4
SECTION 2.1. EFFECT ON CAPITAL STOCK..................................4
SECTION 2.2. EFFECT ON OP UNITS.......................................4
SECTION 2.3. EXCHANGE OF CERTIFICATES AND OP UNITS....................5
SECTION 2.4. CERTAIN ADJUSTMENTS......................................7
SECTION 2.5. STOCK OPTIONS AND RESTRICTED STOCK GRANTS................7
ARTICLE III REPRESENTATIONS AND WARRANTIES.....................................9
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............9
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF PARENT, ACQUIROR
OP AND REIT MERGER SUB..................................31
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS..........................34
SECTION 4.1. CONDUCT OF BUSINESS BY THE COMPANY......................34
SECTION 4.2. ADVICE OF CHANGES.......................................38
SECTION 4.3. NO SOLICITATION BY THE COMPANY..........................38
ARTICLE V ADDITIONAL AGREEMENTS...............................................41
SECTION 5.1. PREPARATION OF THE PROXY STATEMENT; COMPANY
SHAREHOLDERS MEETING....................................41
SECTION 5.2. ACCESS TO INFORMATION; CONFIDENTIALITY..................42
SECTION 5.3. COMMERCIALLY REASONABLE EFFORTS.........................43
SECTION 5.4. FEES....................................................44
SECTION 5.5. PUBLIC ANNOUNCEMENTS....................................46
SECTION 5.6. CONVEYANCE TAXES........................................46
SECTION 5.7. STANDSTILL AGREEMENTS; CONFIDENTIALITY AGREEMENT........47
SECTION 5.8. SECURITIES PURCHASE.....................................47
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SECTION 5.9. PROFESSIONAL REPORTS - SURVEYS..........................47
SECTION 5.10. COMPANY STOCK OPTIONS...................................48
SECTION 5.11. INDEMNIFICATION.........................................48
SECTION 5.12. RESIGNATIONS............................................48
SECTION 5.13. EMPLOYEE ARRANGEMENTS...................................48
SECTION 5.14. COMPANY STOCK PLANS.....................................49
SECTION 5.15. REVPAR..................................................49
SECTION 5.16. RESOLUTIONS.............................................49
ARTICLE VI CONDITIONS PRECEDENT...............................................49
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO
EFFECT THE MERGERS......................................49
SECTION 6.2. CONDITIONS TO OBLIGATIONS OF PARENT, ACQUIROR OP
AND REIT MERGER SUB.....................................50
SECTION 6.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND TARGET OP..51
SECTION 6.4. FRUSTRATION OF CLOSING CONDITIONS.......................51
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................52
SECTION 7.1. TERMINATION.............................................52
SECTION 7.2. EFFECT OF TERMINATION...................................53
SECTION 7.3. AMENDMENT...............................................53
SECTION 7.4. EXTENSION; WAIVER.......................................53
ARTICLE VIII GENERAL PROVISIONS...............................................53
SECTION 8.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS..........................................53
SECTION 8.2. NOTICES.................................................54
SECTION 8.3. DEFINITIONS.............................................54
SECTION 8.4. INTERPRETATION..........................................55
SECTION 8.5. COUNTERPARTS............................................56
SECTION 8.6. ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES.............56
SECTION 8.7. GOVERNING LAW...........................................56
SECTION 8.8. ASSIGNMENT..............................................56
SECTION 8.9. CONSENT TO JURISDICTION.................................56
SECTION 8.10. HEADINGS................................................57
SECTION 8.11. SEVERABILITY............................................57
SECTION 8.12. ENFORCEMENT.............................................57
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INDEX OF DEFINED TERMS
DEFINED TERMS SECTION DEFINED
------------- ---------------
Adjustment Event Section 2.4
Articles of REIT Merger Section 1.4
affiliate Section 8.3(a)
Authorized Corporation Protection Act Section 3.1(s)
Agreement Preamble
Business Combination Act Section 3.1 (t)
Certificate of REIT Merger Section 1.4
Change in the Company Recommendation Section 4.3(b)
Charter Section 3.1d
Closing Date Section 1.3
Closing Section 1.3
Code Section 2.3(g)
Company Preamble
Company Acquisition Agreement Section 4.3(b)
Company Common Stock Recitals
Company Disclosure Schedule Section 3.1
Company Financial Advisor Section 3.1(r)
Company Material Contracts Section 3.1(f)
Company Preferred Stock Section 3.1(c)
Company Recommendation Section 5.1(c)
Company Regulatory Agreement Section 3.1(h)(iii)
Company SEC Documents Section 3.1(e)(i)
Company Severance Agreements Section 5.14
Company Shareholder Approval Section 3.1(p)
Company Shareholders Meeting Recitals
Company Stock Certificates Section 2.3(b)
Company Stock Option Section 2.5(a)
Company Stock Options Section 2.5(a)
Company Stock Plans Section 2.5(a)
Company Superior Proposal Section 4.3(a)
Company Takeover Proposal Section 4.3(a)
Confidentiality Agreement Section 5.2
Control Share Acquisition Act Section 3.1(t)
DGCL Recitals
Dissenting Shares Section 2.4
Effective Time Section 1.4
Employee Section 3.1(f)
Employee Plans Section 3.1(k)(i)
Environmental Laws Section 3.1(l)(x)(A)
Environmental Permits Section 3.1(l)(i)
ERISA Section 3.1(j)(ii)
ERISA Affiliate Section 3.1(k)(i)
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Escrowed Amount Section 5.4(c)
Exchange Act Section 3.1(c)
Exchange Agent Section 2.3(a)
Exchange Fund Section 2.3(a)
Fiduciary Section 3.1(k)(v)
Flagstone Agreement Section 5.9
GAAP Section 3.1(e)(ii)
Governmental Entity Section 3.1(d)
Hazardous Substances Section 3.1(l)(x)(B)
HSR Act Section 3.1(d)
Indemnified Parties Section 5.12
Initial REIT Year Section 3.1(j)(i)
Instruments of Indebtedness Section 3.1(f)
Intellectual Property Section 3.1(n)
IRS Section 3.1(j)(xviii)
Knowledge Section 8.3(f)
Letter of Transmittal Section 2.3(b)
Liens Section 3.1(b)
Major Shareholder Section 3.1(c)
Material Adverse Effect Section 8.3(b)
Material Revpar Change Section 8.3(c)
Mergers Recitals
Multi-Employer Plans Section 3.1(k)(iv)
OP Merger Consideration Recitals
OP Partner Approval Section 3.1(q)
OP Units Recitals
Option Consideration Section 2.5(a)
Optionee Consent Letter Section 2.5(a)
Other Company Documents Section 3.1(h)(iv)
Other Parent Documents Section 3.2(g)(iii)
Owned Properties Section 3.1(t)(i)(A)
Owned Property Section 3.1(t)(i)(A)
Owned Property Restrictions Section 3.1(t)(i)(B)
Parent Preamble
Parent Employee Stock Options Section 3.2(b)
Parent Regulatory Agreement Section 3.2(g)(ii)
Payor Section 5.4(c)
PBGC Section 3.1(k)(iii)
Permits Section 3.1(h)(i)
Permitted Liens Section 3.1(u)(i)(A)
person Section 8.3(d)
Post Signing Returns Section 4.4
Pre-Termination Company Takeover Proposal Event Section 5.4(b)(v)
Property Agreements Section 3.1(u)(i)(D)
Proxy Statement Section 3.1(d)
Qualifying Income Section 5.4(c)
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Recipient REIT Section 5.4(c)
Recipient REIT Break-Up Tax Opinion Section 5.4(c)
REIT Merger Recitals
REIT Merger Consideration Recitals
REIT Merger Sub Preamble
REIT Requirements Section 5.4(c)
Release Section 3.1(l)(x)(C)
Registration S-K Section 3.1(f)(i)
Requisite Regulatory Approvals Section 6.1(b)
Restraints Section 6.1(c)
Restricted Stock Grants Section 2.5(d)
SEC Section 3.1
Securities Act Section 3.1(e)(i)
Software Section 3.1(n)(i)
SOXA Section 3.1(e)(i)
State Takeover Laws Section 3.1(t)
Subsidiary Section 8.3(e)
Surviving Corporation Section 1.1
Surviving OP Section 1.2
Tangible Personal Property. Section 3.1(x)
Target OP Preamble
OP Acquisition Sub Section 5.16
OP Agreement Section 3.1(d)
OP REIT Merger Agreement Section 5.16
OP Units Recitals
Tax Section 3.1(j)(i)
Taxes Section 3.1(j)(i)
TBCA Recitals
TRULPA Section 1.2
Exhibit A: Form of Certificate of REIT Merger (Delaware)
Exhibit B: Form of Articles of REIT Merger (Tennessee)
Exhibit C: Form of Certificate of OP Merger (Tennessee)
Exhibit D: Form of Flagstone Agreement
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Company Disclosure Schedule
Schedule 2.5 Company Stock Plans
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c)(i) Limited Partners
Schedule 3.1(c)(ii) Company Stock Options
Schedule 3.1(d) Authority; Noncontravention
Schedule 3.1(e)(ii) Undisclosed Liabilities
Schedule 3.1(f) Company Material Contracts
Schedule 3.1(g) Certain Changes or Events
Schedule 3.1(h) Permits; Compliance with Applicable Laws
Schedule 3.1(i) Pending Litigation
Schedule 3.1(j) Tax Matters
Schedule 3.1(k) Employee Benefits
Schedule 3.1(k)(xi) Excess Parachute Payments
Schedule 3.1(k)(xii) Severance, Acceleration
Schedule 3.1(l) Labor Matters
Schedule 3.1(m) Environmental Matters
Schedule 3.1(o) Insurance Policies
Schedule 3.1(u)(i)(A) Owned Property and Permitted Liens
Schedule 3.1(u)(v) Remaining Properties
Schedule 4.1 Conduct of Business by the Company
Schedule 5.13 Company Severance Agreements and Payments
Schedule 6.2(e) Opinion relating to REIT status
Schedule 6.2(i) Material Consents
vi
AGREEMENT (this "Agreement") made and entered into on this 8th day of
May 2003, by and among CNL HOSPITALITY PROPERTIES, INC., a Maryland corporation
("Parent"), CNL ROSE ACQUISITION CORP., a Delaware corporation and an indirect
wholly-owned subsidiary of Parent ("REIT Merger Sub"), RFS HOTEL INVESTORS,
INC., a Tennessee corporation (the "Company"), CNL ROSE ACQUISITION OP, LP, a
Tennessee limited partnership and an indirect wholly-owned subsidiary of Parent
("Acquiror OP") and RFS PARTNERSHIP, L.P., a Tennessee limited partnership
("Target OP").
W I T N E S S E T H :
WHEREAS, each of Parent, REIT Merger Sub and the Company desires that
Parent and REIT Merger Sub consummate a business combination with the Company in
a transaction whereby, upon the terms and subject to the conditions set forth in
this Agreement, the Company will merge with and into REIT Merger Sub (the "REIT
Merger"), each outstanding share of common stock, $.01 par value, of the Company
("Company Common Stock") (other than shares cancelled and retired pursuant to
Section 2.1(b)), will be converted into the right to receive $12.35 in cash (the
"REIT Merger Consideration"), and REIT Merger Sub will be the surviving
corporation in the REIT Merger;
WHEREAS, simultaneously with the REIT Merger, Acquiror OP will be
merged with and into Target OP (the "OP Merger" and collectively with the REIT
Merger, the "Mergers"), pursuant to which the Limited Partners (as defined
below) of Target OP (other than holders of OP Units cancelled pursuant to
Section 2.2(b)), will receive $12.35 in cash (the "OP Merger Consideration") in
exchange for each of their Target OP partnership units ("OP Units") and Target
OP will be the surviving limited partnership in the OP Merger;
WHEREAS, the Board of Directors of the Company has adopted this
Agreement in accordance with the Tennessee Business Corporation Act, as amended
(the "TBCA"), and has further resolved to recommend to all holders of Company
Common Stock that they vote affirmatively to approve this Agreement at a meeting
of such holders to be duly called and convened for such purpose (the "Company
Shareholders Meeting") and the Board of Directors of the Company in its capacity
as the general partner of the Target OP, has adopted this Agreement and has
agreed to recommend to all Target OP limited partners that they approve the OP
Merger; and
WHEREAS, the Boards of Directors of Parent and REIT Merger Sub have
determined and resolved that the REIT Merger and all of the transactions
contemplated by this Agreement are in the best interest of Parent and its
stockholders and Parent, as the indirect owner of REIT Merger Sub, has caused
this Agreement to be adopted in accordance with the Delaware General Corporation
Law, as amended (the "DGCL") and the board of directors of Parent in its
capacity as the general partner of Acquiror OP has determined that the OP Merger
is in the best interests of Acquiror OP's limited partners and has agreed to
recommend to all Acquiror OP limited partners that they approve the OP Merger.
NOW, THEREFORE, in consideration of the mutual premises recited above
and the representations, warranties, covenants and agreements contained in this
Agreement, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
THE MERGERS
SECTION 1.1. THE REIT MERGER. Upon the terms and subject to the
conditions set forth in this Agreement and in accordance with the TBCA and the
DGCL, at the Effective Time (as defined herein) the Company shall be merged with
and into REIT Merger Sub and REIT Merger Sub shall be the surviving corporation
in the REIT Merger (the "Surviving Corporation") and the separate corporate
existence of the Company thereupon shall cease.
SECTION 1.2. OP MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement in accordance with the provisions of, and with the effects provided
in, Section 61-2-211 of the Tennessee Revised Uniform Limited Partnership Act
("TRULPA"), at the Effective Time, Acquiror OP shall be merged with and into
Target OP and Target OP shall be the surviving limited partnership (the
"Surviving OP") in the OP Merger.
(b) The sole general partner of the Surviving OP shall be REIT
Merger Sub, and the limited partners of the Acquiror OP immediately prior to the
OP Merger shall be the limited partners of the Surviving OP.
SECTION 1.3. CLOSING. Subject to the satisfaction or, to the extent
permitted by applicable law, waiver of the conditions to consummation of the
REIT Merger and the OP Merger contained in Article VI hereof, the closing of the
REIT Merger and the OP Merger (the "Closing") shall take place at 10:00 a.m.,
Eastern Standard Time, on a date (the "Closing Date") no later than the second
business day next following the satisfaction or, to the extent permitted by
applicable law, waiver of the conditions set forth in Article VI (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or, to the extent permitted by applicable law, waiver
of those conditions--it being the intention of the parties hereto that such date
shall not be more than two days following the Company Shareholder Approval;
provided all other conditions set forth in Article VI have been satisfied,
unless another time or date is agreed to by the parties hereto). The Closing
will be held at the offices of Xxxxxxxxx Xxxxxxx, LLP, 000 Xxxxx Xxxxxx Xxxxxx,
Xxxxxxx, Xxxxxxx 00000-0000 or at such other location as is agreed to by the
parties hereto.
SECTION 1.4. EFFECTIVE TIME. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing the parties shall (A)
cause the REIT Merger to be consummated by filing with the Secretary of State of
the State of Delaware a certificate of merger in the form of Exhibit A hereto
(the "Certificate of REIT Merger") duly executed and so filed in accordance with
the DGCL and by filing with the Secretary of State of the State of Tennessee,
articles of merger in the form of Exhibit B hereto (the "Articles of REIT
Merger") duly executed and so filed in accordance with the TBCA, and (B) cause
the OP Merger to be consummated by filing with the Secretary of State of the
State of Tennessee a certificate of merger in the form of Exhibit C hereto (the
"Certificate of OP Merger") duly executed and so filed in accordance with the
TRULPA and (C) make all other filings and recordings required under the DGCL,
the TBCA and the TRULPA to effectuate the REIT Merger, the OP Merger and the
other transactions
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contemplated by this Agreement. The (A) REIT Merger shall become effective at
such time as the Certificate of REIT Merger is duly filed with the Secretary of
State of the State of Delaware and Articles of REIT Merger are duly filed with
the Secretary of State of the State of Tennessee and (B) OP Merger shall become
effective at such time as the Certificate of OP Merger is duly filed with the
Secretary of State of the State of Tennessee, or, in each case, at such
subsequent date or time as Parent and the Company mutually shall agree and
specify in the Certificate of REIT Merger, Articles of REIT Merger and
Certificate of OP Merger, which date shall be no later than the next business
day after the Closing Date (the time the REIT Merger and OP Merger become so
effective being hereinafter referred to as the "Effective Time").
SECTION 1.5. EFFECTS OF THE MERGERS. The REIT Merger shall have the
effects set forth in Section 259 of the DGCL and Section 00-00-000 of the TBCA.
The OP Merger shall have the effects specified in Section 61-2-211(f) of the
TRULPA.
SECTION 1.6. CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION. The certificate of incorporation of REIT Merger Sub in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended or restated
as provided therein or by applicable law. The by-laws of REIT Merger Sub in
effect immediately prior to the Effective Time shall be the by-laws of the
Surviving Corporation until thereafter amended or restated as provided therein
or by applicable law.
SECTION 1.7. DIRECTORS AND OFFICERS. The directors of REIT Merger Sub
at the Effective Time shall, from and after the Effective Time, be and become
the directors of the Surviving Corporation until their successors shall have
been duly elected and qualified or until their earlier death, resignation or
removal in accordance with the certificate of incorporation and by-laws of the
Surviving Corporation and the DGCL. The officers of REIT Merger Sub at the
Effective Time shall, from and after the Effective Time, be and become the
officers of the Surviving Corporation until their successors shall have been
duly appointed and qualified or until their earlier death, resignation or
removal in accordance with the certificate of incorporation and the by-laws of
the Surviving Corporation.
SECTION 1.8. CERTIFICATE OF LIMITED PARTNERSHIP AND PARTNERSHIP
AGREEMENT.The Certificate of Limited Partnership of Target OP as in effect
immediately prior to the Effective Time shall be the Certificate of Limited
Partnership of the Surviving OP, which shall simultaneously be amended in
accordance with applicable law so as to reflect the change in the Surviving OP's
general partner and limited partners. Acquiror OP Partnership Agreement as in
effect immediately prior to the Effective Time shall be the partnership
agreement of the Surviving OP, until duly amended in accordance with applicable
law.
SECTION 1.9 RESERVATION OF RIGHT TO REVISE STRUCTURE.Subject to this
Section 1.9, at Parent's request, and with the Company's consent, which consent
shall not be unreasonably withheld, the Mergers alternatively may be structured
such that (a) the REIT Merger Sub is merged with and into the Company (with the
Company as the surviving corporation) or, (b) another directly or indirectly
wholly-owned entity of Parent, other than REIT Merger Sub is merged with the
Company; or (c) the Target OP is merged with and into Acquiror OP (with the
Acquiror OP as the surviving partnership) or, (d) another directly or indirectly
wholly-owned
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entity of Parent, other than Acquiror OP is merged with Target OP.
Notwithstanding the foregoing, and without limitation, the Company shall not be
required to consent to any such change which may (i) alter or change the amount
or kind of the consideration paid in the Mergers or alter or change adversely
the treatment of the holders of Company Common Stock or limited partners holding
OP Units as otherwise provided in this Agreement, or (ii) impede or delay
consummation of the Mergers or the other transactions contemplated by this
Agreement. If Parent makes the foregoing election and the Company consents
thereto, the parties agree promptly to execute an appropriate amendment to this
Agreement to reflect such changes.
ARTICLE II
EFFECT OF THE MERGERS; EXCHANGE OF CERTIFICATES
SECTION 2.1. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue
of the REIT Merger and automatically without any action on the part of any
holder of capital stock of Parent, REIT Merger Sub or the Company, respectively:
(a) Capital Stock of REIT Merger Sub. Each then outstanding share
of common stock, $.01 par value, of REIT Merger Sub shall remain outstanding and
each certificate therefor shall continue to evidence fully paid and
nonassessable shares of common stock, $.01 par value, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. Each
share of Company Common Stock then issued and held in the Company's treasury or
by any of the Company's subsidiaries, and each share of Company Common Stock
then owned by Parent, REIT Merger Sub or any other wholly-owned subsidiary of
Parent (except for shares owned on behalf of third parties), shall be canceled
and retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(c) Conversion of Company Common Stock. Each then outstanding
share of Company Common Stock (other than shares cancelled and retired pursuant
to Section 2.1(b) hereof), shall be converted into and become the right to
receive the REIT Merger Consideration.
SECTION 2.2. EFFECT ON OP UNITS. At the Effective Time, by virtue of
the OP Merger and automatically without any action on the part of any holder of
OP Units or any holder of partnership interests in Acquiror OP, respectively:
(a) Interests of Acquiror OP. All of the then outstanding
partnership interests of Acquiror OP (except as set forth in 2.2(b) below) shall
be converted into partnership interests of Surviving OP.
(b) Conversion of OP Units. Each issued and outstanding OP Unit
not then owned by REIT Merger Sub or Acquiror OP or the Company shall be
converted into the right to receive from Acquiror OP the OP Unit Merger
Consideration. Each OP Unit then owned by Acquiror OP or the Company (as general
partner) of Target OP shall be canceled and retired and shall cease to exist,
and no consideration shall be delivered in exchange therefor.
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SECTION 2.3. EXCHANGE OF CERTIFICATES AND OP UNITS.
(a) At the Closing, Parent shall deposit with SunTrust Bank,
Atlanta, Georgia, or such other bank or trust company designated by Parent and
reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of
the holders of shares of Company Common Stock and OP Units for exchange in
accordance with this Section 2.3, cash representing the aggregate REIT Merger
Consideration issuable pursuant to Section 2.1(c) and the aggregate OP Merger
Consideration issuable pursuant to Section 2.2(b) (such REIT Merger
Consideration and OP Merger Consideration being hereinafter referred to as the
"Exchange Fund").
(b) As soon as reasonably practicable after the Effective Time,
but in no event later than two (2) business days thereafter, the Exchange Agent
shall mail to each holder of record of a certificate (or certificates) which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Company Stock Certificates") (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Company Stock Certificate(s) (to the extent applicable)
shall pass, only upon delivery of the Company Stock Certificate(s) (or
affidavits of loss in lieu of such certificates) (the "Letter of Transmittal")
to the Exchange Agent and shall be in such form and have such other provisions
as Parent or the Exchange Agent reasonably may specify, together with a
substitute Form W-9) and (ii) instructions for surrendering Company Stock
Certificate(s) in exchange for the REIT Merger Consideration. Upon surrender to
the Exchange Agent of a Company Stock Certificate in proper form for
cancellation, together with a duly executed Letter of Transmittal, the holder of
such Company Stock Certificate shall be entitled to receive in exchange therefor
a check representing the REIT Merger Consideration that such Company Shareholder
is entitled to receive pursuant to Section 2.1(c), in all cases after giving
effect to the payment of all required withholding Taxes. For shares of Company
Common Stock that are held in book entry form, Parent shall establish procedures
for the delivery of such Company Common Stock, which procedures shall be
reasonably acceptable to the Company. The Company Stock Certificate so
surrendered shall forthwith be cancelled. Without limiting the generality of the
foregoing (and notwithstanding any other provisions of this Agreement), no
interest shall be paid or accrued in respect of any of the REIT Merger
Consideration. In the event of a transfer of ownership of shares of Company
Common Stock that is not registered on the stock transfer books and records of
the Company, a check representing the REIT Merger Consideration that such holder
of Company Common Stock is entitled to receive pursuant to Section 2.1(c), will
be issued to such transferee only if a Company Stock Certificate held by such
transferee is properly presented to the Exchange Agent, accompanied by all
documents reasonably required to evidence and effect such transfer and to
evidence that all applicable stock transfer Taxes theretofore have been paid.
Until surrendered in accordance with this Section 2.3 and as specified in the
Letter of Transmittal, each Company Stock Certificate shall be deemed at all
times from and after the Effective Time to represent only the right to receive
upon such surrender, the REIT Merger Consideration. If any Company Stock
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Company Stock Certificate to
be lost, stolen or destroyed and, if required by Parent, the posting by such
person of a bond in such reasonable amount as Parent may direct as indemnity
against any claim that may be made against it or the Surviving Corporation with
respect to such Company Stock Certificate, the Exchange Agent shall deliver in
exchange for such lost, stolen or destroyed Company Stock Certificate, the REIT
Merger
5
Consideration that such holder of Company Common Stock is entitled to
receive pursuant to Section 2.1(c).
(c) As soon as reasonably practicable after the Effective Time,
but in no event later than two (2) business days thereafter, the Exchange Agent
shall mail to each limited partner holding OP Units (the "Limited Partners") at
the address set forth on Schedule 3.1(c)(i) to the Company Disclosure Schedule a
certified check payable to such holder in the amount set forth opposite such
holder's name on Schedule 3.1(c)(i) to the Company Disclosure Schedule;
provided, however, that prior to the Effective Time such Limited Partner has
acknowledged its record and beneficial ownership of the OP Units and indicated
the address to which the OP Merger Consideration shall be sent.
(d) All REIT Merger Consideration paid upon surrender of Company
Stock Certificates in accordance with this Article II and as specified in the
Letter of Transmittal shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock
represented thereby and, as of the Effective Time, the stock transfer books and
records of the Company shall be closed and there shall be no further
registration of transfers on the stock transfer books and records of the Company
of shares of Company Common Stock outstanding immediately prior to the Effective
Time. If, after the Effective Time, Company Stock Certificates are properly
presented to the Surviving Corporation for any reason (but otherwise in
accordance with this Article II and as specified in the Letter of Transmittal),
they shall be cancelled and exchanged as provided in this Section 2.3.
(e) At any time following the six-month anniversary of the
Effective Time, Parent shall be entitled to require the Exchange Agent to
deliver to it any remaining portion of the Exchange Fund not theretofore
distributed to former holders of shares of Company Common Stock or Limited
Partners (including any interest received with respect thereto and other income
resulting from investments thereof by the Exchange Agent, as directed by
Parent), and such former holders shall be entitled to look only to Parent
(subject to abandoned property, escheat and other similar laws) with respect to
the REIT Merger Consideration or OP Merger Consideration, as the case may be,
payable upon due surrender of their Company Stock Certificates or otherwise,
without any interest thereon and less all required withholding Taxes.
Notwithstanding the foregoing, neither Parent nor the Exchange Agent shall be
liable to any holder of a Company Stock Certificate for REIT Merger
Consideration or a Limited Partner for OP Merger Consideration (or dividends or
distributions in respect thereof) or cash from the Exchange Fund in each case
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(f) The Exchange Fund shall only be used to pay the REIT Merger
Consideration and the OP Merger Consideration and shall not be used for any
other purpose. The Exchange Agent shall invest any cash included in the Exchange
Fund as directed by Parent. Any interest, proceeds and other income resulting
from such investments shall be paid to Parent upon termination of the Exchange
Fund in accordance with Section 2.3(e). If the cash in the Exchange Fund shall
be insufficient to satisfy fully all of the payment obligations to be made by
the Exchange Agent hereunder, then Parent promptly shall, from time to time,
deposit cash into the Exchange Fund in an amount which is equal to the
deficiency in the amount of cash required to satisfy fully such payment
obligations.
6
(g) Each of the Surviving Corporation, REIT Merger Sub and Parent
shall be entitled to deduct and withhold from the REIT Merger Consideration and
the OP Merger Consideration otherwise payable pursuant to this Agreement to any
holder of shares of Company Common Stock or Company Stock Options (as defined
below) or OP Units such Taxes and other amounts as it is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations promulgated
thereunder, and pursuant to the applicable provisions of state, local and
foreign Tax laws. To the extent that amounts are so deducted and withheld, the
Surviving Corporation, REIT Merger Sub, Acquiror OP, or Parent shall pay to the
applicable taxing authority such deducted, withheld and paid amounts, which
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock or Company Stock Options, or
Restricted Stock Grants as the case may be, in respect of which such deduction,
withholding and payment was made by the Surviving Corporation, REIT Merger Sub,
Acquiror OP or Parent.
SECTION 2.4. CERTAIN ADJUSTMENTS. If after the date hereof and prior to
the Effective Time and to the extent permitted by this Agreement, the
outstanding shares of Company Common Stock or outstanding OP Units shall be
changed into a different number, class or series of shares or partnership units,
as the case may be, by reason of any reclassification, recapitalization or
combination, forward stock split, reverse stock split, stock dividend or rights
issued in respect of such stock, or any similar event shall occur (any such
action, an "Adjustment Event"), the REIT Merger Consideration and/or the OP
Merger Consideration, as the case may be, shall be adjusted correspondingly to
provide to the holders of Company Common Stock and OP Units the right to receive
the same economic effect as contemplated by this Agreement immediately prior to
such Adjustment Event and Parent's payment obligations likewise shall be
correspondingly adjusted such that it shall be required to pay and deliver not
more than the aggregate REIT Merger Consideration and OP Merger Consideration
contemplated by this Agreement.
SECTION 2.5. STOCK OPTIONS AND RESTRICTED STOCK GRANTS.
(a) The Company shall use its commercially reasonable efforts to
obtain, not later than 20 days after the date hereof, from each holder of
outstanding options (whether or not then exercisable or vested) to acquire
Company Common Stock granted under the Company's 1993 Restricted Stock and Stock
Option Plan, as amended, and all other plans, agreements and arrangements
providing for equity-based compensation to any director, Employee, consultant or
independent contractor of the Company or any of their subsidiaries as described
in Schedule 2.5 of the Company Disclosure Schedule (collectively, the "Company
Stock Plans"), (each, a "Company Stock Option" and collectively, the "Company
Stock Options"), an executed agreement substantially in the form described in
Schedule 2.5 to the Company Disclosure Schedule (each, an "Optionee Consent
Letter"), in each case providing that (i) immediately prior to the Effective
Time each Company Stock Option held by such holder shall become fully vested and
immediately exercisable, (ii) at the Effective Time each then outstanding
Company Stock Option shall at the Effective Time be cancelled and void, (iii) in
consideration of such vesting and cancellation, immediately prior to the Closing
each Company Stock Option shall thereupon represent for all purposes under the
relevant Company Stock Plan and all grant and award instruments and agreements
governing and evidencing such holder's Company Stock Option(s)
7
only the right to receive from Rose Managers, Inc., a subsidiary of the Company,
(subject to Section 2.3(g) and Section 2.1(c)) such amount of cash equal to, for
each Company Stock Option, the product of (x) the number of shares of Company
Common Stock subject to the Company Stock Options held by such holder and (y)
the excess (to the extent a positive number (i.e. - where the REIT Merger
Consideration is in excess of the applicable exercise price of the Company Stock
Option) of the REIT Merger Consideration over the then applicable per share
exercise price of each such Company Stock Option (such amount of cash being so
paid in full settlement of and in consideration for cancellation of each such
Company Stock Option being hereinafter referred to as the "Option
Consideration"), payable as provided in Section 2.5(b), and (iv) from and after
the Effective Time, except as provided in this Section 2.5, such holder shall
not have any rights or benefits under any Company Stock Plan or Company Stock
Option (or any grant or award letter or agreement issued in respect thereof) to
acquire any securities of the Company, Parent, the Surviving Corporation or any
subsidiary of Parent and shall, by virtue of having effected such surrender,
cancellation and receipt of Option Consideration, have unconditionally and
irrevocably discharged and released Parent, the Company, the Surviving
Corporation and each of their respective subsidiaries, officers, directors and
affiliates from and against, and thereupon shall have permanently waived, all
rights and claims (fixed, contingent or otherwise) such holder may now or
hereafter have thereunder with respect to all Company Stock Plans and Company
Stock Options (and all grant and award instruments and agreements governing and
evidencing the same).
(b) Immediately prior to the Closing, the Company shall, or shall
cause Rose Managers, Inc., a subsidiary of the Company, to pay to each holder of
a Company Stock Option the Option Consideration (net of any applicable
withholding tax as provided in Section 2.3(g)) in respect thereof. Until settled
in accordance with the provisions of this Section 2.5(b), each Company Stock
Option shall be deemed at any time after the Effective Time to represent for all
purposes only the right to receive from the Company, Rose Managers, Inc., a
subsidiary of the Company, or Parent, the Option Consideration.
(c) The Company promptly shall use its commercially reasonable
efforts (including causing the Board of Directors of the Company or any
compensation, stock option, corporate governance, special or other duly
constituted committee thereof to take all such actions as are permitted by the
Company Stock Plans) to implement the provisions of this Section 2.5 (including,
without limitation, the delivery to all holders of Company Stock Options such
letters, notices and disclosures informing such holders of the REIT Merger and
the transactions contemplated by this Agreement and delivery of the form of
Optionee Consent Letter contemplated by Section 2.5(a) above) and to ensure that
in exchange for payment of the Option Consideration (i) from and after the
Effective Time, no holder of a Company Stock Option nor any party to or
participant in any of the Company Stock Plans shall have any right thereunder to
acquire any equity securities of the Company, Parent, the Surviving Corporation
or any subsidiary thereof and (ii) the Company Stock Plans and all Company Stock
Options (and all grant and award letters and agreements issued in respect
thereof) shall terminate and become void as of the Effective Time. The Company
shall permit each holder of Company Stock Options to satisfy any withholding Tax
and other payments in respect of such holder under the Code and the rules and
regulations promulgated thereunder, and pursuant to the applicable provisions of
state, local and foreign Tax laws, by withholding such amount of cash otherwise
8
payable to such holder pursuant to this Agreement as shall be equal in value to
the amount of any such withholding Tax and other payments in respect of such
holder.
(d) Notwithstanding the provisions of any grant or award agreement
evidencing awards of Company Common Stock the vesting of which is subject to
future forfeiture or attainment of performance measures (a "Restricted Stock
Grant"), all outstanding restricted Company Common Stock that is subject to a
Restricted Stock Grant shall vest in full immediately prior to the Effective
Time so as to no longer be subject to any forfeiture or to attainment of any
performance measures and all such shares of Company Common Stock shall be
considered outstanding Company Common Stock for all purposes of this Agreement,
including receipt of the REIT Merger Consideration.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
set forth on the Disclosure Schedule delivered by the Company to Parent prior to
the execution of this Agreement which hereby is incorporated by reference in and
constitutes an integral part of this Agreement (the "Company Disclosure
Schedule") and which makes specific reference to the particular subsection(s) of
this Agreement to which exception is being taken, or except as set forth in the
Company SEC Documents, the Company hereby represents and warrants to Parent and
REIT Merger Sub as follows:
(a) Organization, Standing and Corporate Power.
(i) Each of the Company and its subsidiaries described in
Schedule 3.1(a) to the Company Disclosure Schedule is a corporation,
partnership or other legal entity duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case
may be, and requisite authority to carry on its business as presently
being conducted. Each of the Company and its subsidiaries is duly
qualified or licensed to conduct business and is in good standing in
each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties or other jurisdictional presence
makes such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed or to be
in good standing, individually or in the aggregate would not have a
Material Adverse Effect on the Company.
(ii) The Company has delivered or made available to Parent
prior to the execution of this Agreement complete and correct copies of
its Charter and by-laws and the OP Agreement, as amended to date.
(iii) The minute books of the Company are true, complete and
correct, in all material respects.
(b) Subsidiaries. Schedule 3.1(a) of the Company Disclosure
Schedule lists the names and jurisdiction of incorporation or organization of
all the subsidiaries of the Company. The outstanding securities of the
subsidiaries of the Company consist of shares of
9
capital stock or other equity interests that are owned by the Company or its
subsidiaries (other than the OP Units owned by limited partners as described on
Schedule 3.1(c)(i) to the Company Disclosure Schedule). All outstanding shares
of capital stock of, or other equity interests in, each such subsidiary: (i)
have been duly authorized, validly issued and are fully paid and nonassessable;
(ii) owned by the Company or its subsidiaries are owned free and clear of all
pledges, claims, liens, charges, encumbrances, adverse claims, mortgages and
security interests of any kind or nature whatsoever (collectively, "Liens"); and
(iii) owned by the Company or its subsidiaries are free of all other
restrictions (including restrictions on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests) that would prevent
the operation by the Surviving Corporation of such subsidiary's business as
presently conducted. Except as set forth above or on Schedule 3.1(a) of the
Company Disclosure Schedule, neither the Company nor any subsidiary owns any
capital stock of, or other equity or voting interests in, any person.
(c) Capital Structure. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, $.01 par value, of the Company ("Company Preferred Stock"). As
of the date hereof: (i) 28,519,999 shares of Company Common Stock (including
Restricted Stock Grants but excluding shares of Company Common Stock issuable
pursuant to Section 5.8 hereof) were issued and outstanding; (ii) 576,100 shares
of Company Common Stock were held by the Company in its treasury and no shares
of Company Common Stock were held by subsidiaries of the Company; (iii)
3,500,000 shares of Company Common Stock were reserved for issuance pursuant to
the Company's Stock Plans of which 1,327,998 shares of Company Common Stock are
subject to outstanding Company Stock Options; (iv) no shares of Company
Preferred Stock were issued or outstanding. All outstanding shares of capital
stock of the Company are, and all shares thereof which may be issued prior to
the Closing Date will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive or any similar rights. As
of the date hereof: (i) 30,941,851 OP Units were issued and outstanding, of
which 28,519,999 OP Units were owned by the Company and 2,421,852 OP Units were
owned by Target OP's limited partners, all of whom are set forth on Schedule
3.1(c)(i) to the Company Disclosure Schedule; and (ii) no preferred partnership
units of Target OP were issued and outstanding.
Schedule 3.1(c)(ii) to the Company Disclosure Schedule is a true
and complete list, as of the date hereof, of all outstanding Company Stock
Options, the number of shares subject to each such Company Stock Option, the
exercise price and the names of the holders thereof. Except as set forth in this
Section 3.1(c) or in accordance with the OP Agreement, (i) there are not issued,
reserved for issuance or outstanding (A) any shares of capital stock or voting
securities or other ownership interests of the Company or Target OP, (B) any
securities of the Company or any of its subsidiaries convertible into or
exchangeable or exercisable for shares of capital stock or voting securities or
other ownership interests of the Company, Target OP, or any of their
subsidiaries, or (C) any warrants, calls, options or other rights to acquire
from the Company or any of its subsidiaries, or any obligation of the Company or
any of its subsidiaries to issue, any capital stock, voting securities or other
ownership interests in, or securities convertible into or exchangeable or
exercisable for, capital stock or voting securities or other ownership interests
of the Company, Target OP, or any of their subsidiaries, and (ii) there are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any such securities or to issue, deliver or sell, or
cause to be issued, delivered
10
or sold, any such securities, other than pursuant to any "cashless exercise"
provision of any Company Stock Options.
None of the Company or any of its subsidiaries is a party, and, to
the Knowledge of the Company and except as set forth in the Charter and OP
Agreement, no other person having "beneficial ownership" (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of more than 5% of the outstanding Company Common Stock (a "Major
Shareholder") is a party to any agreement restricting the transfer of, relating
to the voting of, requiring registration of, or granting any preemptive,
antidilutive or other similar rights with respect to any of the securities of
the Company or any of its subsidiaries. There are no voting trusts, share or
stockholders agreements or other agreements or understandings to which the
Company or any of its subsidiaries is a party or, to the Knowledge of the
Company, any Major Shareholder is a party, with respect to the voting of the
capital stock of the Company or any of its subsidiaries. There is no debt of the
Company or any of its subsidiaries which entitles the holder thereof to vote
with holders of equity securities of the Company.
(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement and, subject, in the
case of the REIT Merger, to the Company Shareholder Approval (as defined
herein), and in the case of the OP Merger, the OP Partner Approval (as defined
herein), to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of the REIT
Merger, to the Company Shareholder Approval. This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and REIT Merger Sub, constitutes the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that such enforceability may be subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect affecting creditors' rights and
remedies generally and (ii) general principles of equity, whether considered in
a proceeding at law or in equity.
The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation, forfeiture or termination of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of forfeiture,
termination, cancellation or acceleration (with or without notice or lapse of
time, or both) of any material obligation or loss of a material benefit, under,
or result in the creation or imposition of any Lien upon any of the properties
or assets of the Company or any of its subsidiaries under, (i) the charter of
the Company ("Charter") or by-laws of the Company, (ii) the Fifth Amended and
Restated Agreement of Limited Partnership of Target OP (the "OP Agreement"),
(iii) the charter, or by-laws or the comparable organizational documents of any
of its subsidiaries, (iv) any loan or credit agreement, note, bond, mortgage,
Permit (as defined herein), indenture, lease, Intellectual Property (as defined
herein), vendor agreement, capital lease, software agreement, franchise
agreement, license agreement or other agreement or instrument applicable to the
Company or any of its subsidiaries or their respective properties or assets that
is material to the operations of the Company and its subsidiaries, taken as a
whole (it being understood that no representation is being given as to whether
the Surviving Corporation, the Surviving OP or any subsidiary will be
11
in compliance with any financial covenants contained therein following the
Mergers), or (v) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, writ, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets, other than, in the case
of clauses (iv) and (v), any such conflicts, violations, defaults, rights,
losses or Liens that, individually or in the aggregate, would not (x) have a
Material Adverse Effect on the Company or (y) reasonably be expected to impair
or materially delay the ability of the Company to perform its obligations under
this Agreement.
No consent, approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with, any (i) Federal, state,
local, municipal or foreign government, (ii) governmental, quasi-governmental
authority (including any governmental agency, commission, public authority,
branch, department or official, and any court or other tribunal) or body
exercising, or entitled to exercise, any governmentally-derived administrative,
executive, judicial, legislative, police, regulatory or taxing authority, or
(iii) any self-regulatory organization, administrative or regulatory agency,
commission, tribunal or authority (each, a "Governmental Entity") is required by
or with respect to the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for (1) the filings
with the SEC of (A) preliminary and definitive proxy materials pursuant to
Regulation 14A under the Exchange Act relating to the Company Shareholders
Meeting (such proxy materials, as amended or supplemented from time to time, the
"Proxy Statement"), and (B) such reports under the Exchange Act as may be
required in connection with the REIT Merger, this Agreement and the transactions
contemplated by this Agreement; (2) the filing of the Articles of REIT Merger
and Certificate of OP Merger with the Secretary of State of the State of
Tennessee and the filing of the Certificate of REIT Merger with the Secretary of
State of the State of Delaware; (3) such filings with Governmental Entities to
satisfy the applicable requirements of the laws of states in which the Company
and its subsidiaries are qualified or licensed to do business; and (4) any such
consents, approvals, orders, authorizations, actions, registrations,
declarations or filings that, individually or in the aggregate, would not (x)
have a Material Adverse Effect on the Company, or (y) reasonably be expected to
impair or materially delay the ability of the Company to perform its obligations
under this Agreement.
(e) Company Documents; Undisclosed Liabilities.
(i) Since January 1, 2000, the Company has timely filed
(giving effect for this purpose to permissible extensions pursuant to
Rule 12b-25 under the Exchange Act, to the extent the filing deadline
as so extended was satisfied) all reports, schedules, forms,
information statements and other documents required to be filed by the
Company with the Securities and Exchange Commission (the "SEC") (and
all certifications required pursuant to the Xxxxxxxx-Xxxxx Act of 2002
("SOXA")), (as amended through the date hereof, the "Company SEC
Documents"). As of their respective filing dates, (A) the Company SEC
Documents complied in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Company SEC Documents, and (B) no
Company SEC Documents, as of their respective dates, except as amended
or supplemented by a subsequent Company XXX Xxxxxxxx,
00
contained, and no Company SEC Documents filed subsequent to the date
hereof will contain as of their respective dates, any untrue statement
of a material fact or omitted, and no Company SEC Documents filed
subsequent to the date hereof will omit as of their respective dates,
to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of registration statements of
the Company under the Securities Act, in light of the circumstances
under which they were made) not misleading.
(ii) The consolidated financial statements of the Company and
its subsidiaries included in Company SEC Documents (including the
related notes) complied as to form, as of their respective dates of
filing with the SEC, in all material respects with the published rules
and regulations of the SEC with respect thereto (including, without
limitation, Regulation S-X), have been prepared in accordance with
generally accepted accounting principles in the United States ("GAAP")
(except, in the case of ---- unaudited statements, as permitted by Rule
10-01 of Regulation S-X) applied on a consistent basis during the
periods and at the dates involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial condition
of the Company and its consolidated subsidiaries at the dates thereof
and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that were not, or with
respect to any such financial statements contained in any Company SEC
Documents to be filed subsequent to the date hereof are not reasonably
expected to be, material in amount or effect). Except for liabilities
incurred in the ordinary course of business since December 31, 2002
consistent with past practice or in connection with this Agreement or
the transactions contemplated hereby, neither the Company nor any of
its subsidiaries has any material liabilities or obligations of any
nature. To the Company's Knowledge, PricewaterhouseCoopers LLP, who has
expressed its opinion with respect to the consolidated financial
statements of the Company and its subsidiaries included in Company SEC
Documents (including the related notes), are independent public or
certified public accountants as required by the Securities Act and the
Exchange Act. Neither the Company nor Target OP has any outstanding and
unresolved comments from the SEC with respect to any of the Company SEC
Documents except to the extent such statements have been amended,
modified or superseded by later filed Company SEC Documents. Other than
Target OP, no other subsidiary of the Company is required to make any
filing with the SEC.
(iii) The OP Units and the Company Preferred Stock are not
registered under Section 12 or 15(d) of the Exchange Act.
(f) Certain Contracts.
(i) Schedule 3.1(f) of the Company Disclosure Schedule lists
all Company Material Contracts other than those filed by the Company or
Target OP as exhibits to the Company SEC Documents. Each Company
Material Contract is valid, binding and enforceable, and in full force
and effect with respect to the Company and its subsidiaries and, to the
Company's Knowledge, each other party thereto, except where such
failure to be so valid, binding and enforceable and in full force and
effect would not,
13
individually or in the aggregate, have a Material Adverse Effect on
the Company, and the Company has no Knowledge of any defaults
thereunder, except those defaults that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. For
purposes of this Agreement, "Company Material Contract" shall mean (i)
any loan agreement, indenture, note, bond, debenture or any other
document or agreement evidencing a capitalized lease obligation or
other indebtedness to any Person and in a principal amount greater
than or equal to $500,000, (ii) each material commitment, contractual
obligation, borrowing, capital expenditure or transaction entered into
by the Company or any of its subsidiaries which may result in total
payments by or liability of the Company or any of its subsidiaries in
excess of $100,000 in any calendar year and which has a remaining term
or duration of more than twenty four (24) months, (iii) each
management agreement and hotel franchise agreement with respect to the
Company's hotels in effect as of the date hereof, (iv) any strategic
alliance or revenue sharing joint venture, (v) any agreement that
grants any right of first or last refusal or right of first or last
offer or similar right to acquire any material assets of the Company
or that limits or purports to limit, in any material manner, the
ability of the Company, or any of its subsidiaries to own, operate,
sell, transfer, pledge or otherwise dispose of any material amount of
assets or business, (vi) any contract or agreement providing for any
material future payments that are conditioned, in whole or in part, on
a change of control of the Company, or any of its subsidiaries, (vii)
any collective bargaining agreement, (viii) any employment agreement
or any agreement or arrangement that contains any material severance
pay or post-employment liabilities or obligations to any current
employee of the Company, or any of its subsidiaries (any such person,
hereinafter, an "Employee"), other than as required under law or (ix)
any other agreement filed as an exhibit to the Company SEC Documents
pursuant to Item 601(b)(10) of Regulation S-K of Title 17, Part 229 of
the Code of Federal Regulations ("Regulation S-K").
(ii) There is no confidentiality agreement, non-competition
agreement or other contract or agreement that contains covenants that
restrict the Company's or any subsidiary's ability to conduct its
business in any location in a manner that is materially adverse to the
business of the Company and its subsidiaries, taken as a whole.
(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, since December 31, 2002 and through the date hereof the Company and its
subsidiaries have conducted their respective businesses only in the ordinary
course, and since such date there has not been:
(i) any issuance of Company Stock Options or restricted shares
of Company Common Stock,
(ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect
to any of the Company's capital stock or the OP Units, except a
distribution of $.25 per share of Company Common Stock and OP Unit paid
on March 31, 2003.
(iii) any split, combination or reclassification of any of the
Company's capital stock or the OP Units or any issuance or the
authorization of any issuance of any
14
other securities in respect of, in lieu of or in substitution for,
shares of the Company's capital stock or the OP Units, except for
issuances of Company Common Stock upon the exercise of Company Stock
Options awarded and outstanding prior to the date hereof in accordance
with their present terms or issuances of Company Common Stock upon
redemption of OP Units,
(iv) (A) any granting by the Company or any of its
subsidiaries to any current or former director, executive officer or
other Employee of any increase in compensation, bonus, perquisites,
incentive payments or other benefits except in the ordinary course of
business, (B) any granting by the Company or any of its subsidiaries to
any such current or former director, executive officer or Employee of
any increase in severance or termination pay, or (C) any entry by the
Company or any of its subsidiaries into, or any amendment of, any
employment, deferred compensation, consulting, severance, termination
or indemnification agreement with any such current or former director,
executive officer or any Employee,
(v) except insofar as may have been required by a change in
GAAP or regulatory accounting principles, any change in the Company's
accounting methods (or underlying assumptions), principles or practices
affecting its assets, liabilities, businesses, properties, cash flows,
revenue or expense recognition policies, estimates, accruals, reserves,
guarantees, amortization, discounts, returns, allowances, depreciation,
goodwill impairment, consolidation principles, contingencies,
intercompany loans, credit collections, including, without limitation,
any reserving, renewal, reversal, deferral, valuation or residual
method, practice or policy, in each case, in effect on the date hereof,
or change in any material respect of any of its methods of reporting
income and deductions for Federal income tax purposes from those
employed in the preparation of the Federal income tax returns of the
Company for the taxable year ended December 31, 2002,
(vi) any tax election or change in any Tax election, amendment
to any Tax Return, closing agreement with respect to Taxes, or
settlement or compromise of any income Tax liability by the Company or
any of its subsidiaries, which had a Material Adverse Effect on the
Company.
(vii) any material change in investment policies, or
(viii) any agreement or commitment (contingent or otherwise)
to do any of the foregoing.
(h) Permits; Compliance with Applicable Laws.
(i) The Company, its subsidiaries or the management companies
for the Company's hotels own and/or possess all material permits,
licenses, variances, authorizations, exemptions, orders, registrations
and approvals of all Governmental Entities which are required for the
ownership and present operation of the Company's Hotels (the
"Permits"). Each of the Company, its subsidiaries and, to the
Company's Knowledge, the management companies referred to above is, and
since January 1, 2001,
15
has been, in compliance in all material respects with the terms of its
Permits and all such Permits are in full force and effect and the
Company has received no notice that any suspension, modification or
revocation of any of them is pending or, to the Knowledge of the
Company, threatened nor, to the Knowledge of the Company, do grounds
exist for any such action except, in the aggregate for such
suspensions, modifications or revocations as would not have a Material
Adverse Effect on the Company.
(ii) Each of the Company and its subsidiaries and, to the
Company's Knowledge, the management companies referred to above
is, and since January 1, 2001, has been, in compliance in all
material respects with all applicable statutes, laws,
regulations, ordinances, Permits, rules, writs, judgments,
orders, decrees and arbitration awards of each Governmental
Entity applicable to the Company and its subsidiaries, except
where the failure to be in compliance would not have a Material
Adverse Effect on the Company.
(iii) Neither the Company, nor any of its subsidiaries is
subject to any outstanding Restraint or is a party to any written
agreement, consent agreement or memorandum of understanding with,
or is a party to any commitment letter or similar undertaking to,
or, is subject to any order or directive by, or is a recipient of
any supervisory letter from or has adopted any resolutions at the
request of any Governmental Entity, that materially restricts the
conduct of its business or, that relates to policies, affairs,
management or its business (each, a "Company Regulatory
Agreement").
(iv) Except for filings with the SEC and filings with
respect to Taxes, which are the subject of Sections 3.1(e) and
3.1(j), respectively, and not covered by this Section 3.1(h)(iv),
the Company, and each of its subsidiaries has timely filed all
regulatory reports, schedules, forms, registrations and other
documents, together with any amendments required to be made with
respect thereto, that they were required to file since January 1,
2000 with each Governmental Entity (the "Other ------ Company
Documents"), and have timely paid all fees and assessments due
and payable in connection therewith, except where the
----------------- failure to make such payments and filings
individually or in the aggregate would not have a Material
Adverse Effect on the Company. There is no material unresolved
violation or exception by any of such Governmental Entities with
respect to any report or statement relating to any examinations
of the Company, or any of its subsidiaries.
(v) Neither the Company, nor any of its subsidiaries nor any
of their respective directors, executive officers or Employees
has been the subject of any disciplinary proceedings or orders of
any Governmental Entity arising under applicable laws or
regulations which would be required to be disclosed in any Other
Company Document except as disclosed therein, and no such
disciplinary proceeding or order is pending, nor to the knowledge
of the Company, threatened.
(i) Absence of Litigation. Schedule 3.1(i) to the Company
Disclosure Schedule contains a true and current list of each material pending
and, to the Company's Knowledge, threatened litigation, action, suit, case,
proceeding, investigation or arbitration and the amount of damages claimed or
other remedies requested in which the Company or any of its
16
subsidiaries is a party or to the Company's Knowledge, threatened to be joined
as a party and, except as set forth in Schedule 3.1(i) to the Company Disclosure
Schedule, no action, inquiry, demand, charge, requirement or investigation by
any Governmental Entity and no litigation, action, suit, case, proceeding,
investigation or arbitration by any Governmental Entity, in each case with
respect to the Company, or any of its subsidiaries or Permits, is pending or, to
the Knowledge of the Company, threatened.
(j) Taxes.
(i) For the taxable year ended December 31, 1993 (the "Initial
REIT Year"), and each taxable year ending thereafter, the Company and
each of its subsidiaries (A) has timely filed all Tax returns and
reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to
do so), and all such returns and reports are true, accurate and
complete in all material respects, and (B) has paid (or the Company has
paid on its behalf) within the time and manner prescribed by law, all
Taxes shown on such returns and reports as required to be paid by it.
The most recent financial statements contained in the Company SEC
Documents reflect an adequate reserve for all material Taxes payable by
the Company and each subsidiary for all taxable periods and portions
thereof through the date of such financial statements. The Company and
each of its subsidiaries has established on its books and records
reserves that are adequate for the payment of all material liabilities
for Taxes accruing through the period covered by such books and records
and until the Effective Time, shall continue to establish and maintain
reserves that are adequate for the payment of all material liabilities
for Taxes accruing through the Effective Time, assuming for these
purposes the actual or deemed liquidation of the Company for federal
income tax purposes as of such date. Since the beginning of the Initial
REIT Year, the Company has incurred no liability for Taxes under
Sections 857(b), 860(c) or 4981 of the Code, including without
limitation any Tax arising from a prohibited transaction described in
Section 857(b)(6) of the Code or from "redetermined rents, redetermined
deductions or excess interest" described by Section 857(b)(7) of the
Code, or from the disallowance of a deduction for interest pursuant to
Section 163(j) of the Code, and neither the Company nor any of its
subsidiaries has incurred any material liability for Taxes other than
in the ordinary course of business. No material unpaid deficiencies for
any Taxes have been proposed, asserted or assessed against the Company
or any of its subsidiaries, including claims by any taxing authority in
a jurisdiction where the Company or any of its subsidiaries does not
file Tax returns but in which any of them is or may be subject to
taxation, and no requests for waivers of any statute of limitations in
respect of Taxes have been made and no extensions of the time to assess
or collect any such Tax are pending and no such waiver remains in
effect. As used in this Agreement, "Taxes" or "Tax" includes all
federal, state, local and foreign income, property, sales, ----- ---
use, franchise, employment, payroll, excise, environmental and other
taxes of any nature whatsoever, together with penalties, interest or
additions to Tax with respect thereto.
(ii) For its Initial REIT Year, the Company made an election
pursuant to Section 856(c)(1) of the Code to be taxable as a real
estate investment trust and such election has not been
17
terminated or revoked, and since its formation, Target OP has been
classified for federal income tax purposes as a partnership pursuant
to Section 7701 of the Code (and not as a "publicly traded
partnership" pursuant to Section 7704 of the Code), and will continue
to be so qualified through the Effective Time.
(iii) For its Initial REIT Year, and at all times thereafter
up to and including the date hereof, the Company has met all of the
requirements to be treated as a real estate investment trust within the
meaning of Sections 856 through 860 of the Code, including,
specifically, the requirements of Section 856 and 857 of the Code, has
not taken or omitted to take any action which could reasonably be
expected to result in a challenge by the IRS to its status as a REIT,
and no such challenge is pending, and shall continue to meet such
requirements up to and including the Effective Time, assuming, for this
purpose, the actual or deemed liquidation of the Company for federal
income tax purposes, as of such date.
(iv) The Company has timely declared and paid or shall timely
declare and pay all dividends and has taken or shall take all other
steps and actions through the Effective Time, including making all
appropriate filings with applicable governmental and tax authorities,
necessary to insure that the Company will not (a) have any federal or
state taxable income attributable to the transactions contemplated by
this Agreement including "real estate investment trust taxable income"
as defined in Section 857(b) of the Code), or (b) incur any federal or
state liability for Taxes, including, without limitation, any liability
for Taxes associated with or incurred as a result of the transactions
contemplated by this Agreement, but excluding Taxes incurred in the
ordinary course of its business and assuming, for these purposes, the
actual or deemed liquidation of the Company for federal income tax
purposes as of the Effective Time.
(v) The sum of (i) the regular dividends that are treated as
"dividends" under Section 316 of the Code (excluding any capital gain
dividends) paid by the Company during the taxable year beginning
January 1, 2003 and ending at the earlier of the Effective Time or
December 31, 2003 (excluding the portion, if any, of such dividends
that are treated as paid in 2002 pursuant to Section 857(b)(8) or
Section 858 of the Code) plus (ii) any extraordinary dividends that are
paid or deemed paid to the shareholders of the Company on or before the
earlier of the Effective Time or December 31, 2003, taking into
account, in each case, only those dividends which are properly
deductible by the Company pursuant to Section 561 of the Code, will
equal or exceed the amount described in Section 857(a)(1) of the Code,
assuming, for this purpose, the actual or deemed liquidation of the
Company for federal income tax purposes as of the Effective Time.
(vi) Since the beginning of the Initial REIT Year, the Company
has incurred no liability for any material Taxes under IRS Notice 88-19
or Treasury Regulation Xxxxxxx 0.000(x)-0X, -0X xx -0X. To the
Knowledge of the Company, no event has occurred, and no condition or
circumstance exists, which presents a material risk that any material
Tax described in the preceding sentence will be imposed on the Company
or any of its subsidiaries prior to the Closing.
18
(vii) The Company has made available to Parent true and
correct copies of all federal income tax returns, state income tax
returns and, if any, state franchise tax reports for the Company and
its subsidiaries beginning with the Initial REIT Year.
(viii) There have been no income tax examination reports or
statements of deficiencies assessed against the Target OP, the Company
or the subsidiaries, which have been agreed to by the Company or its
subsidiaries.
(ix) Neither the Company nor any of its subsidiaries holds any
asset (x) the disposition of which would be subject to rules similar to
Section 1374 of the Code as announced in IRS Notice 88-19 or Treasury
Regulation Section 1.337(d)-5T, -6T or -7T or (y) that is subject to a
consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder.
(x) The Company does not have any earnings and profits
attributable to the Company or any other corporation in any non-REIT
year within the meaning of Section 857 of the Code.
(xi) Neither the Company nor any of its subsidiaries (A) has
filed a consent under Section 341(f) of the Code concerning collapsible
corporations, (B) is a party to any Tax allocation or sharing agreement
with a third party or (C) for any taxable periods ending prior to the
Effective Time has failed to distribute realized net capital gains as
designated capital gain dividends pursuant to Section 857(b)(3) of the
Code on or prior to the last day of the Company's taxable year to which
such designation relates, taking into account dividends treated or paid
and received on December 31 under Section 857(b)(9) of the Code.
(xii) The Company does not have any material liability for the
Taxes of any Person other than the Company and its subsidiaries, and
its subsidiaries do not have any material liability for the Taxes of
any Person other than the Company and the Company's Subsidiaries (A)
under Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign Law), (B) as a transferee or successor, (C) by
contract, (D) by operation of law, or (E) otherwise.
(xiii) Neither the Company nor any of its subsidiaries have
made any payments, are obligated to make any payments, or are parties
to an agreement that could obligate them to make any payments that will
not be deductible under Section 280G of the Code with respect to any
taxable year for which Tax returns have not been filed.
(xiv) The Company and its subsidiaries have disclosed to the
IRS all positions taken on their Federal income Tax returns which could
reasonably be expected to give rise to a penalty for substantial
understatement of tax under Section 6662 of the Code.
(xv) For taxable years beginning after December 31, 2000, a
timely Taxable REIT Subsidiary election was made for all corporations
where the Company owned, directly or indirectly, greater than ten
percent of the total voting power or value of the outstanding
securities of such issuer (other than securities of a Qualified REIT
19
Subsidiary or securities the ownership of which did not violate section
856(c)(4)(B) of the Code). Without limiting any of the other
representations in this Agreement, to the extent the Company owns any
stock, directly or indirectly, in a Taxable REIT Subsidiary, as defined
in section 856(l) of the Code,
(A) The Taxable REIT Subsidiary has fully complied with
the requirements in section 856(l)(3) and (4) of the Code,
relating to (a) restrictions on operating or managing a
lodging facility or healthcare facility, and (b)
restrictions on providing to any person rights to a brand
name under which any lodging facility or healthcare facility
is operated.
(B) With respect to any amounts treated by the Company
as qualified rents from real property for purposes of
section 856(c) of the Code, and which were received from a
Taxable REIT Subsidiary of the Company for the lease of a
qualified lodging facility as defined in 856(d)(9)(D) of the
Code, such lodging facility has been operated at all times
on behalf of the Taxable REIT Subsidiary by a person who
qualified as an eligible independent contractor within the
meaning of section 856(d)(8) and 856(d)(9) of the Code, and
whose agreements and relations with each of the Company and
the Taxable REIT Subsidiaries have been at all times
negotiated and maintained on an arm's length basis.
(k) Employee Benefit Plans.
(i) Schedule 3.1(k) to the Company Disclosure Schedule
contains a true and complete list of all pension, stock option, stock
purchase, benefit, welfare, profit-sharing, retirement, disability,
vacation, severance, hospitalization, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, funds,
programs or arrangements, whether written or oral, in each of the
foregoing cases which is maintained for the benefit of, or relates to
any or all current or former employees of the Company nor any of its
subsidiaries and any other entity ("ERISA Affiliate") related to the
Company under Section 414(b), (c), (m) and (o) of the Code (the
"Employee Plans"). Neither the Company nor any ERISA Affiliate of the
Company has any commitment or formal plan, whether or not legally
binding, to create any additional employee benefit plan or modify or
change any existing Employee Plan other than as may be required by the
express terms of such Employee Plan or applicable law.
(ii) With respect to each Employee Plan that has been
qualified or is intended to be qualified under the Code or that is an
"Employee Benefit Plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended, ("ERISA"),
such Employee Plan has been duly approved and adopted by all necessary
and appropriate action of the Board of Directors of the Company (or a
duly constituted committee thereof), and, with respect to each Employee
Plan, the Company heretofore has delivered or made available to Parent
complete and correct copies of each of the following documents:
(A) the Employee Plan and any amendments thereto (or if
the Employee Plan is not a written Employee Plan, a
description thereof);
20
(B) the annual report, (including all Schedules
attached thereto), independent accountant's report,
actuarial report, if required under ERISA and, for any
Employee Plan to which Section 401(k) or 401(m) are
applicable, non-discrimination testing for the three (3)
most recent plan years, and the most recent report prepared
with respect thereto in accordance with Statement of
Financial Accounting Standards No. 87;
(C) the Summary Plan Description and summaries of
material modifications and all modifications thereto
communicated to employees with respect thereto;
(D) if the Employee Plan is funded through a trust or
any third party funding vehicle, the trust or other funding
agreement and the financial statements thereof;
(E) the most recent determination letter received from
the Internal Revenue Service with respect to each Employee
Plan intended to qualify under Section 401 or 501(c)(9) of
the Code; and
(F) any pending favorable determination letter
applications filed with the Internal Revenue Service,
together with all attachments thereto and all subsequent
correspondence and communications with regard to such
application.
(iii) With respect to the Employee Plans, all required
contributions for all periods ending before the Closing Date have been
or will be paid in full by the Closing Date or will be accrued on the
financial statements of the Company or ERISA Affiliate.
(iv) Neither the Company nor any ERISA Affiliate contributes
or, during the five year period prior to the date hereof contributed,
to or has any actual or contingent liabilities under a "multi-employer
plan" as defined in Sections 3(37) and 4001(a)(3) of ERISA or Section
414 of the Code.
(v) With respect to each Employee Plan (i) no prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the
Code have occurred or are expected to occur as a result of the Mergers
or the transactions contemplated by this Agreement which would result
in a material liability for the Company or any ERISA Affiliate, (ii) no
action, suit, grievance, arbitration or other type of litigation, or
claim with respect to the assets of any Employee Plan (other than
routine claims for benefits made in the ordinary course of plan
administration for which plan administrative review procedures have not
been exhausted) is pending or, to the Knowledge of the Company,
threatened or imminent against the Company, any ERISA Affiliate or any
fiduciary (in its capacity as a fiduciary of the Employee Plan), as
such term is defined in Section 3(21) of ERISA ("Fiduciary"),
including, but not limited to, any action, suit, grievance, arbitration
or other type of litigation, or claim regarding conduct that
allegedly interferes with the attainment of rights under any Employee
Plan and (iii) the Company has no Knowledge
21
of any facts which may reasonably be expected to give rise to any such
actions, suits, grievances, arbitration or other type of litigation, or
claims with respect to any Employee Plan. To the Knowledge of the
Company, neither the Company nor any of its subsidiaries, nor any of
their directors, officers, Employees or any Fiduciary has any material
liability for failure to comply with ERISA or the Code for any action
or failure to act in connection with the administration or investment
of any Employee Plan. None of the Employee Plans is subject to any
pending investigations or to the Knowledge of the Company threatened
investigations from any Governmental Agencies who enforce applicable
laws under ERISA and the Code.
(vi) Each of the Employee Plans is, and has been, in all
material respects, operated in accordance with its terms and each of
the Employee Plans, and the administration thereof, is, and has been,
in all material respects in compliance with the requirements of any and
all applicable statutes, orders or governmental rules or regulations
currently in effect, including, but not limited to, ERISA and the Code.
All required reports and descriptions of the Employee Plans (including
but not limited to Form 5500 Annual Reports, Form 1024 Application for
Recognition of Exemption Under Section 501(a), Summary Annual Reports
and Summary Plan Descriptions) have been timely filed and distributed
as required by ERISA and the Code. Any notices required by ERISA or the
Code or any other state or federal law or any ruling or regulation of
any state or federal administrative agency with respect to the Employee
Plans, including but not limited to any notices required by Section
204(h), Section 606 or Section 4043 of ERISA or Section 4980B of the
Code, have been appropriately given except to the extent that a failure
to do so will not result in a material liability by the Company or any
ERISA Affiliate.
(vii) The IRS has issued a favorable determination letter with
respect to each Employee Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code and no such letter has not been
revoked and, to the Knowledge of the Company, no circumstances exist
that could adversely affect the qualified status of any such plan and
the exemption under Section 501(a) of the Code of the trust maintained
thereunder. Each Employee Plan intended to satisfy the requirements of
Section 125, 501(c)(9) or 501(c)(17) of the Code has satisfied such
requirements in all material respects.
(viii) Neither the Company or any ERISA Affiliate maintains
or, during the five year period prior to the date hereof maintained, or
has any actual or contingent liabilities under an "employee pension
benefit plan" as defined in Section 3(2) of ERISA that is or was
subject to Title IV or Section 302 of ERISA.
(ix) No Employee Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
Employees for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by Section
4980B of the Code, Section 601 of ERISA or other applicable law, (ii)
death benefits under any "employee pension benefit plan" as defined in
Section 3(2) of ERISA, (iii) benefits the full cost of which is borne
by the Employee (or his beneficiary) or (iv) Employee Plans that can be
amended or terminated by the Company without the consent of a
participant or beneficiary. The Company does not have any current or
projected
22
liability with respect to post-employment or post-retirement
welfare benefits for retired, former, or current Employees of the
Company.
(x) No material amounts payable under the Employee Plans will
fail to be deductible for Federal income tax purposes by virtue of
Section 162(m) of the Code.
(xi) Except to the persons set forth on Schedule 3.1(k)(xi),
the transactions contemplated by this Agreement will not be the direct
or indirect cause of any amount paid or payable by the Company or any
of its subsidiaries being classified as an excess parachute payment
under Section 280G of the Code and no person will be entitled to a
"gross up" or other similar payment in respect of excise taxes under
Section 4999 of the Code with respect to the transactions contemplated
by this Agreement.
(xii) Except as specifically identified on Schedule
3.1(k)(xii) to the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries will be obligated to pay to any Employee
separation, severance, termination or similar benefits as a result of
any transaction contemplated by this Agreement, nor shall any such
transaction accelerate the time of payment or vesting, or increase the
amount of any benefit or other compensation payable by the Company or
any of its subsidiaries to any Employee.
(l) Labor Matters. To the Company's Knowledge, after due inquiry
of appropriate employees of the Company and its subsidiaries and records of the
Company and its subsidiaries:
(i) Neither the Company nor any of its subsidiaries is a party
to any collective bargaining agreement or other current labor agreement
with any labor union or organization, and, to the Company's Knowledge,
there is no question involving current union representation of
employees of the Company or any of its subsidiaries, nor to the
Company's Knowledge is any activity or proceeding of any labor
organization (or representative thereof) or employee group (or
representative thereof) underway to organize any such employees.
(ii) There is no unfair labor practice charge or grievance
arising out of a collective bargaining agreement or other grievance
procedure pending, or, to the Knowledge of the Company or any of its
subsidiaries, threatened against the Company or any of its
subsidiaries.
(iii) There is no complaint, lawsuit or proceeding in any
forum by or on behalf of any present or former employee, any applicant
for employment or any classes of the foregoing, alleging breach of any
express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship pending, or, to the Knowledge of the Company,
threatened against the Company or any of its subsidiaries.
(iv) There is no strike, slowdown, work stoppage or lockout
pending, or, to the Knowledge of the Company, threatened, against or
involving the Company or any of its subsidiaries.
23
(v) The Company and its subsidiaries are in material
compliance with all applicable laws in respect of employment and
employment practices, terms and conditions of employment, wages, hours
of work and occupational safety and health.
(vi) There is no proceeding, claim, suit, action or
governmental investigation pending or, to the Knowledge of the Company,
threatened with respect to which any current or former director,
officer, Employee or agent of the Company or any of its subsidiaries is
claiming indemnification from the Company and its subsidiaries.
(m) Environmental Matters. To the Company's Knowledge, after due
inquiry of appropriate employees of the Company and its subsidiaries and records
of the Company and its subsidiaries:
(i) each of the Company and its subsidiaries has obtained all
material permits, approvals and authorizations required under
Environmental Laws (hereinafter "Environmental Permits"), to operate
their respective assets;
(ii) there are no present or past Releases (1) at any of the
Owned Properties (as defined herein), (2) at any properties formerly
owned or operated by the Company or any of its subsidiaries, (3) at any
facility that received Hazardous Substances generated by the Company or
any of its subsidiaries or (4) attributable to the operations of the
Company or any of its subsidiaries to which a person has been exposed;
in each such case, where such Releases have given rise to a claim
asserted, that, in each case, has or would reasonably be expected to
form the basis of any assertion of any material claim under
Environmental Laws against the Company or any of its subsidiaries;
(iii) no Lien has been placed or threatened to be placed upon
any of the Owned Properties or formerly owned or leased properties,
under any Environmental Law that is attributable to the operations of
the Company or any of its subsidiaries;
(iv) there has been no written report of an environmental
investigation, study, audit, test, review or other analysis conducted
in relation to any of the Owned Properties or any former operations or
properties or facilities previously owned or leased by the Company or
any of its subsidiaries, which is in the possession or control of the
Company or any of its subsidiaries that has not been delivered or made
available to the Parent at least ten (10) days prior to the date
hereof;
(v) no Environmental Law imposes any obligation upon the
Company or any of its subsidiaries arising out of or as a condition to
any transaction contemplated by this Agreement, including any
requirement to modify or transfer any Environmental Permits, any
requirement to file any notice or other submission with a Governmental
Entity, the placement of any notice, restriction, acknowledgment or
covenant in any land records, or the modification of or provision of
notice under any agreement, consent order or consent decree, except
where such failure or delay, individually or in the aggregate, would
not have a Material Adverse Effect on the Company;
(vi) neither the Company, nor any of its subsidiaries has
entered into or agreed to, nor does any of them currently intend to
enter into, any consent decree or order
24
in respect of the business of the Company or any of its subsidiaries,
or any of the Owned Properties, and none of them is subject to any
court or governmental entity order relating to compliance with, or
addressing a Release of Hazardous Substances for which a cleanup or
other response is required under, any Environmental Laws in respect of
the business of the Company or any of its subsidiaries or any of the
Owned Properties;
(vii) no underground storage tanks, asbestos containing
materials or polychlorinated biphenyls or paint containing lead, are
present on the Owned Properties in a condition which materially
violates applicable Environmental Laws or which is subject to consent
or compliance orders imposed by any governmental entity;
(viii) with respect to the Owned Properties and any other
property formerly owned, used or operated by the Company or any of its
subsidiaries, the Company has not received and has no Knowledge, after
due inquiry of appropriate employees of the Company and its
subsidiaries and records of the Company and its subsidiaries, of any
basis for (i) any written notice, citation, summons, complaint or order
from any Governmental Entity alleging a material violation of any
Environmental Law attributable to the operations of the Company or any
of its subsidiaries or (ii) any notice, citation, summons, complaint or
order from any Governmental Entity alleging failure of the business of
the Company or any of its subsidiaries to obtain any Environmental
Permits; and
(ix) the Company has no Knowledge, after due inquiry of
appropriate employees of the Company and its subsidiaries and records
of the Company and its subsidiaries, of:
(A) any current or past unresolved material violation
of or liability under any Environmental Laws or
Environmental Permits attributable to the operations of the
Company or any of its subsidiaries;
(B) as of the date hereof, the institution, pendency or
threat of any material suit, action, claim or proceeding in
connection with any violation or liability under any
Environmental Laws or Environmental Permits attributable to
the operations of the Company or its subsidiaries; or
(C) any material demand, claim, suit or order seeking
or requiring payment for, response to, or remediation of
Hazardous Substances at or arising from any of the Owned
Properties, or other properties formerly owned or operated
by the Company attributable to the operations of the
Company, or at properties used for the storage,
transportation or disposal of Hazardous Substances generated
by the Company.
(x) As used in this Agreement:
(A) "Environmental Laws" shall mean any and all binding
and applicable local, municipal, state or federal law,
statute, treaty, directive, decision, judgment, award,
regulation, decree, rule, code of practice, order,
direction, consent, authorization or similar requirement,
approval or standard concerning
25
(1) public health and safety, and/or (2) environmental
matters (including clean-up standards and practices), with respect
to buildings, equipment, soil, sub-surface strata, air, surface
water, or ground water, whether to facilities such as those of the
Owned Properties in the jurisdictions in which the Owned
Properties are located or to facilities such as those used for the
transportation, storage or disposal of Hazardous Substances
generated by the Company and/or its subsidiaries.
(B) "Hazardous Substances" shall mean any and all
dangerous substances, hazardous substances, toxic
substances, radioactive substances (including without
limitation radon and other naturally occurring radioactive
substances), hazardous wastes, special wastes, controlled
wastes, oils, petroleum and petroleum products, hazardous
chemicals and any other materials which are regulated by the
Environmental Laws or otherwise found or determined by a
Governmental Entity to be potentially harmful to human
health or the environment, Hazardous Substances shall
include, without limitation, asbestos, urea formaldehyde
foam insulation, lead paint, polychlorinated biphenyls, and
transformers, light ballasts, and/or any other equipment
that might contain polychlorinated biphenyls, and any
chemicals, materials or substances which may be defined as
or included in the definition of "solid waste," "hazardous
substances," "hazardous waste," "hazardous materials,"
"extremely hazardous substances," "restricted hazardous
wastes," "pollutants," "toxic substances" or "toxic
pollutants" under any Environmental Law.
(C) "Release" shall mean any spilling, leaking,
pumping, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of Hazardous
Substances (including the abandonment or discarding of
barrels, containers or other closed receptacles containing
Hazardous Substances) into the environment.
(n) Intellectual Property. The Company and its subsidiaries own,
possess or have adequate rights to use all trademarks, trade names, patents,
service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights necessary for the operation of their
businesses (collectively, the "Intellectual Property"), except where the failure
to possess or have adequate rights to use such properties, individually or in
the aggregate, would not have a Material Adverse Effect on the Company. All of
the Intellectual Property is owned or licensed by the Company or its
subsidiaries free and clear of any and all Liens, except those that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company, and neither the Company nor any of its subsidiaries has forfeited
or otherwise relinquished any Intellectual Property which forfeiture has
resulted in, individually or in the aggregate, or would result in a Material
Adverse Effect on the Company. To the Knowledge of the Company, the use of
Intellectual Property by the Company or its subsidiaries does not in any
material respect conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trademark, trade
name, patent, service xxxx, brand xxxx, brand name, computer program, database,
industrial design, copyright or any pending application therefor, of any other
Person, and there have been no claims made against the Company or any
subsidiary, and neither the Company nor any of its subsidiaries has received any
notice of any claim or otherwise has
26
Knowledge that any of the Intellectual Property is invalid or conflicts with the
asserted rights of any other Person or has not been used or enforced or has
failed to have been used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of any of the Intellectual
Property, except for any such conflict, infringement, violation, interference,
claim, invalidity, abandonment, cancellation or unenforceability that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
(o) Insurance Matters. All material policies of insurance to which the
Company or any of its subsidiaries is a party are set forth on Schedule 3.1(o)
to the Company Disclosure Schedule. Such policies provide insurance coverage
that the Company believes is customary in amount and scope for other companies
in the hotel industry and no notice of cancellation or termination has been
received by the Company with respect to any such policy. All such policies,
considered collectively with other such policies providing the same type of
coverage, are sufficient for compliance in all material respects with all
requirements under any franchise and other agreements, plans, commitments and
leases to which the Company or any of its subsidiaries is a party.
(p) Transactions with Affiliates. There are no outstanding amounts
payable to or receivable from, or advances by the Company or any of its
subsidiaries to, and the Company nor any of its subsidiaries is otherwise a
creditor of or debtor to, any director, Employee or affiliate of the Company or
any of its subsidiaries, other than as part of the normal and customary terms of
such persons' employment or service as a director with the Company or any of its
subsidiaries. Neither the Company nor any of its subsidiaries is a party to any
transaction or agreement with any affiliate, director or executive officer of
the Company or any of its subsidiaries or any material transaction or agreement
with any Employee other than executive officers..
(q) Voting Requirements. The affirmative vote (in person or by duly
authorized and valid proxy at the Company Shareholders Meeting) of the holders
of a majority of the outstanding shares of Company Common Stock in favor of the
approval of this Agreement (the "Company Shareholder Approval") is the only vote
of the holders of any class or series of the Company's capital stock required by
applicable law (including, without limitation, the TBCA), the Charter and the
Company's bylaws to duly effect such approval. The OP Merger requires the
approval of the Company, as general partner of Target OP and limited partners of
Target OP who own more than 50% of the then current percentage or other interest
in the profits of Target OP owned by all of the limited partners of Target OP
(the "OP Partner Approval").
(r) Opinion of Financial Advisor. The Board of Directors of the Company
has received the opinion of Credit Suisse First Boston LLC (the "Company
Financial Advisor"), to the effect that, as of the date hereof, the REIT Merger
Consideration is fair to holders of Company Common Stock, from a financial point
of view, and such opinion has not been withdrawn, revoked or modified. A copy of
such opinion shall be delivered to Parent promptly after the date hereof.
(s) Brokers. Except for the Company Financial Advisor, a copy of whose
engagement agreement has been or will be made available to Parent and whose fees
in connection with the transactions contemplated by this Agreement shall not
exceed the amounts
27
set forth therein, no broker, investment banker, financial advisor, finder,
consultant or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee, compensation or commission, however and whenever
payable, in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
(t) Takeover Laws. The Company has taken (or caused to have been taken)
and has done (or caused to have been done) all actions and things necessary to
make this Agreement, the REIT Merger and all of the transactions contemplated
hereby exempt from or otherwise not subject to the provisions of Sections
00-000-000 et. seq. (the "Business Combination Act"), and Sections 00-000-000
et. seq. (the "Control Share Acquisition Act"), Sections 00-000-000 et. seq (the
"Authorized Corporation Protection Act") of the TBCA) or any other Tennessee
state takeover law having a similar effect (collectively, "State Takeover
Laws").
(u) Real Property.
(i) (A) The Company, Target OP and each of their subsidiaries,
as applicable, owns fee simple title to or has a valid leasehold
interest in, each of the real properties reflected on the most recent
balance sheet of the Company and/or Target OP included in the Company
SEC Documents and as identified on Schedule 3.1(u)(i)(A) to the Company
Disclosure Schedule (each, an "Owned Property" and collectively, the
"Owned Properties"), which are all of the real estate properties owned
or leased by them, free and clear of Liens except for the following
permitted Liens (the "Permitted Liens"): (1) debt and other matters
identified on Schedule 3.1(u)(i)(A) to the Company Disclosure Schedule,
(2) inchoate Liens imposed for construction work in progress or
otherwise incurred in the ordinary course of business, (3) mechanics',
workmen's and repairmen's Liens (other than inchoate Liens for work in
progress) which have heretofore been bonded or insured; (4) leases
(whether or not of record), reciprocal easement agreements and all
matters disclosed on existing title policies or as would be disclosed
on current title reports or surveys prepared in accordance with
ALTA/ACSM standards (excluding outstanding indebtedness listed on
Schedule 3.1(u)(i)(A) to the Company Disclosure Schedule); (5) real
estate Taxes and special assessments for the calendar year in which the
Closing occurs and (6) ground leases;
(B) the Owned Properties are not subject to any rights of
way or written agreements affecting building use or occupancy, or
reservations of an interest in title (collectively, "Owned
Property Restrictions"), except for (1) applicable laws,
ordinances and regulations governing ownership and development of
the Owned Properties, including but not limited to zoning,
subdivision and building code regulations, (2) leases, reciprocal
easement agreements and all matters disclosed on existing title
policies or as would be disclosed on current title reports or
surveys prepared in accordance with ALTA/ACSM standards (excluding
outstanding indebtedness listed on Schedule 3.1(u)(i)(A) to the
Company Disclosure Schedule) and (3) real estate Taxes and special
assessments for the calendar year in which the Closing occurs;
28
(C) except as would not have a Material Adverse Effect on
the Company, valid policies of title insurance have been issued
insuring Company's, Target OP's, any subsidiary's or any
predecessor in interest's fee simple title or ground leasehold
estate to the Owned Properties except as noted therein, and, to
the Knowledge of the Company, such policies are, at the date of
this Agreement, in full force and effect and no claim has been
made against any such policy;
(D) except as would not have a Material Adverse Effect on
the Company, to the Knowledge of Company, there is no certificate,
permit or license from any Governmental Entity having jurisdiction
over any of the Owned Properties or any agreement, easement or any
other right which is necessary to permit the lawful use and
operation of the buildings and improvements on any of the Owned
Properties or which is necessary to permit the lawful egress and
ingress to and from any of the Owned Properties (collectively, the
"Property Agreements") that has not been obtained and is not in
full force and effect, or of any pending threat of modification or
cancellation of any of same;
(E) except as would not have a Material Adverse Effect on
the Company, neither the Company nor any of its subsidiaries has
received written notice of any violation of any Federal, state or
municipal Law, ordinance, order, regulation or requirement
affecting any portion of any of the Owned Properties issued by any
Governmental Entity that has not otherwise been resolved;
(F) except as would not have a Material Adverse Effect on
the Company, neither the Company nor any of its subsidiaries has
received written notice from any Governmental Entity to the effect
that there are any (1) condemnation or rezoning or proceedings
that are pending or, to the Knowledge of the Company, threatened
with respect to any material portion of any of the Owned
Properties or (2) zoning, building or similar Laws or orders that
are presently being violated or will be violated by the continued
maintenance, operation or use of any buildings or other
improvements on any of the Owned Properties or by the continued
maintenance, operation or use of the parking areas;
(G) except as would not have a Material Adverse Effect on
the Company, neither the Company nor any of its subsidiaries has
received written notice that it is currently in default or
violation of any Owned Property Restrictions; and
(H) except as would not have a Material Adverse Effect on
the Company, neither the Company nor any of its subsidiaries has
received written notice that it is currently in default of any
material Property Agreements.
(I) The 2003 capital expenditure budget previously
provided to Parent and previously approved by the Board of
Directors of the Company represents all the capital expenditures
to be made with respect to each of the Owned Properties through
the period ending December 31, 2003, and such budget is intended
to comply with each applicable franchise agreement (including
29
without limitation any product improvement plans) to which
the Company or any of its subsidiaries is a party.
(ii) Except as would not have a Material Adverse Effect on the
Company, to the Knowledge of the Company, each Owned Property complies
with the Owned Property Restrictions.
(iii) All properties currently under development or
construction by the Company, Target OP and any of their subsidiaries
and all properties currently proposed for acquisition, development or
commencement of construction prior to the Effective Time by the Company
and any of its subsidiaries are listed as such on Schedule 3.1(u)(iii)
to the Company Disclosure Schedule. All executory agreements entered
into by the Company, Target OP or any of its subsidiaries relating to
the development or construction of real estate properties (other than
agreements for architectural, engineering, planning, accounting, legal
or other professional services or agreements for material or labor) are
listed on Schedule 3.1(u)(iii) to the Company Disclosure Schedule.
(iv) Schedule 3.1(f) to the Company Disclosure Schedule sets
forth a listing of all of the Company's and its subsidiaries' leases in
a principal amount greater than or equal to $100,000, other than with
respect to the leases with the Company's subsidiaries as lessees, for
each of the Owned Properties as of the date hereof. Except as would not
have a Material Adverse Effect on the Company, the information set
forth in Schedule 3.1(f)(iv) is true, correct and complete as of the
date thereof. Except as would not have a Material Adverse Effect on the
Company, or as set forth in a delinquency report made available to
Parent, neither the Company nor any of its subsidiaries, on the one
hand, nor, to the Knowledge of Company, any other party, on the other
hand, is in material monetary default under any such lease.
(v) There are no structural defects or other defects in the
heating, ventilating, air conditioning, electrical, plumbing, water,
elevator(s), and sanitary sewer systems at the Company's properties
listed on Schedule 3.1(u)(v), other than matters which, in the
aggregate, will not cost more than $10,000,000 to repair.
(v) Investment Company. Neither the Company nor any of its
subsidiaries is required to be registered as an investment company under the
Investment Company Act of 1940, as amended.
(w) Board Approval. Pursuant to meetings duly noticed and convened
in accordance with all applicable laws and at each of which a quorum was
present, the Board of Directors of the Company, after full and deliberate
consideration, has (i) duly adopted this Agreement on behalf of the Company and
on behalf of the Company as general partner of Target OP, and (ii) resolved to
make the Company Recommendation, and directed that the REIT Merger be submitted
for consideration by the holders of Company Common Stock at the Company
Shareholders Meeting.
30
(x) Information Supplied. None of the information supplied or to
be supplied by the Company specifically for inclusion or incorporation by
reference in the Proxy Statement will, at the date it is first mailed to the
Company's Shareholders and at the time of the Company Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, no representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by Parent specifically for inclusion or
incorporation by reference in the Proxy Statement. Each of the Company and its
subsidiaries maintains accurate books and records reflecting its assets and
liabilities and maintains proper and adequate internal accounting controls which
provide assurances that (i) transactions are executed with management's
authorization; (ii) transactions are recorded as necessary to permit preparation
of the consolidated financial statements of the Company and to maintain
accountability for the Company's consolidated assets; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; and (iv) the recorded accountability of the Company's assets is
compared with existing assets at reasonable intervals all as required pursuant
to Section 13(b)(2) of the Exchange Act.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF PARENT, ACQUIROR OP AND
REIT MERGER SUB. Parent, Acquiror OP and REIT Merger Sub hereby, jointly and
severally, represent and warrant to the Company and Target OP as follows:
(a) Organization, Standing and Corporate Power.
(i) Each of Parent, REIT Merger Sub and Acquiror OP is a
corporation, partnership or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction in
which it is organized and has the requisite corporate power or other
power, as the case may be, and requisite authority to carry on its
business as presently being conducted. Each of Parent and REIT Merger
Sub is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or
the ownership, leasing or operation of its properties or other
jurisdictional presence makes such qualification or licensing
necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually or in the
aggregate, would not have a Material Adverse Effect on Parent or REIT
Merger Sub.
(ii) REIT Merger Sub is a newly formed corporation.
(iii) Acquiror OP is a newly formed limited partnership with
no material assets or liabilities, except for liabilities arising under
this Agreement. REIT Merger Sub and Acquiror OP have not conducted, and
will not conduct any business or activities prior to the Mergers other
than the issuance of their equity interests in connection with their
formation.
(b) Authority; Noncontravention. Each of Parent, Acquiror OP and
REIT Merger Sub has all requisite corporate or partnership power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and
31
delivery of this Agreement by Parent, Acquiror OP and REIT Merger Sub and the
consummation by Parent, Acquiror OP and REIT Merger Sub of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or partnership action on the part of Parent, Acquiror OP and REIT
Merger Sub, as applicable. This Agreement has been duly executed and delivered
by each of Parent, Acquiror OP and REIT Merger Sub, and, assuming the due
authorization, execution and delivery hereof by the Company and Target OP,
constitutes the valid and binding obligations of Parent, Acquiror OP and REIT
Merger Sub, respectively, enforceable against Parent, Acquiror OP and REIT
Merger Sub, respectively, in accordance with their terms, except that such
enforceability may be subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect affecting creditors' rights and remedies generally and (ii)
general principles of equity, whether considered in a proceeding of law or in
equity.
The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation, forfeiture or termination of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of forfeiture,
termination, cancellation or acceleration (with or without notice or lapse of
time, or both) of any material obligation or loss of a material benefit, under,
or result in the creation or imposition of any Lien upon any of the properties
or assets of Parent, Acquiror OP or REIT Merger Sub under, (i) the certificate
of incorporation or by-laws of Parent, (ii) the certificate of incorporation or
by-laws of REIT Merger Sub, (iii) the certificate of limited partnership or the
agreement of limited partnership of Acquiror OP; (iv) any loan or credit
agreement, note, bond, mortgage, indenture, lease, vendor agreement, capital
lease, software agreement, permit, concession, franchise, license or other
agreement or instrument or similar authorization applicable to Parent or REIT
Merger Sub or (v) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, writ, statute, law,
ordinance, rule or regulation applicable to Parent or REIT Merger Sub, other
than, in the case of clauses (iv) and (v), any such conflicts, violations,
defaults, rights, losses or Liens that individually or in the aggregate would
not (x) have a Material Adverse Effect on Parent or (y) reasonably be expected
to materially impair or materially delay the ability of Parent, Acquiror OP or
REIT Merger Sub to perform their respective obligations under this Agreement.
No consent, approval, order or authorization of, action by, or in
respect of, or registration, declaration or filing with, any Governmental Entity
is required by or with respect to Parent, Acquiror OP or REIT Merger Sub in
connection with the execution and delivery of this Agreement by Parent, Acquiror
OP and REIT Merger Sub or the consummation by Parent, Acquiror OP and REIT
Merger Sub of the transactions contemplated by this Agreement, except for (1)
the filings with the SEC of such reports under the Exchange Act as may be
required in connection with the REIT Merger, the OP Merger, this Agreement and
the transactions contemplated by this Agreement; (2) the filing of the Articles
of REIT Merger and Certificate of OP Merger with the Secretary of the State of
the State of Tennessee and the filing of the Certificate of REIT Merger; (3)
such filings with Governmental Entities to satisfy the applicable requirements
of the laws of states in which Parent and its subsidiaries are qualified or
licensed to do business; and (4) any such consents, approvals, orders,
authorizations, actions, registrations, declarations or filings that,
individually or in the aggregate, would not (x) have a Material Adverse Effect
on the Parent, or (y) reasonably be expected to impair or materially delay the
32
ability of the Parent, Acquiror OP and REIT Merger Sub to perform their
obligations under this Agreement.
(c) Brokers. Except for Banc of America Securities LLC, no broker,
investment banker, financial advisor, finder, consultant or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee,
compensation or commission, however and whenever payable, in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent, Acquiror OP or REIT Merger Sub.
(d) Compliance with Applicable Laws. Each of Parent, Acquiror OP
and REIT Merger Sub is and in the case of Parent has, since January 1, 2000,
been, in compliance in all material respects with all applicable statutes, laws,
regulations, ordinances, permits, rules, writs, judgments, orders, decrees or
arbitration awards of any Governmental Entity applicable to Parent, Acquiror OP
and REIT Merger Sub except where the failure to be in compliance would not have
a Material Adverse Effect on Parent.
(e) Absence of Litigation. There are no material pending or, to
Parent's Knowledge, threatened litigations, actions, suits, cases, proceedings,
investigations or arbitrations with respect to Parent, Acquiror OP or REIT
Merger Sub or any of their respective properties that would (x) have a Material
Adverse Effect on Parent or (y) reasonably be expected to materially impair or
materially delay the ability of Parent, Acquiror OP or REIT Merger Sub to
perform their respective obligations under this Agreement.
(f) Absence of Certain Changes. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, and
except as disclosed in the Parent SEC Documents filed and publicly available
prior to the date hereof, since December 31, 2002, there are not, to Parent's
Knowledge, any facts, circumstances or events that make it reasonably likely
that Parent, Acquiror OP and REIT Merger Sub will not be able to fulfill their
obligations under this Agreement in all material respects.
(g) Board Approval. Pursuant to meetings duly noticed and convened
in accordance with all applicable laws and at each of which a quorum was
present, (i) the Board of Directors of Parent, after full and deliberate
consideration, has duly adopted this Agreement and resolved that the REIT Merger
and the transactions contemplated hereby are advisable, (ii) the Board of
Directors of REIT Merger Sub, after full and deliberate consideration, has duly
approved this Agreement and has determined that the REIT Merger and the OP
Merger are in the best interests of its shareholders; and (iii) the Board of
Directors of the general partner of the Acquiror OP, on behalf of the Acquiror
OP, after full and deliberate consideration, has duly approved this Agreement
and has determined that the REIT Merger and OP Merger are in the best interests
of the Acquiror OP's partners.
(h) Adequate Funds. Parent has, and will have at the Closing,
adequate cash reserves or borrowing availability under existing credit
facilities and/or standard and customary lending commitments sufficient in the
aggregate to pay the aggregate REIT Merger Consideration and OP Merger
Consideration and all other payments contemplated hereunder, in each case at
such time and in such manner as contemplated by this Agreement. Parent has
33
provided to the Company copies of any financing commitment letters relating to
funding of any of the payments required by Parent hereunder.
(i) Information Supplied. None of the information supplied or to
be supplied by Parent specifically for inclusion or incorporation by reference
in the Proxy Statement will, at the date it is first mailed to the Company's
Shareholders and at the time of the Company Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading; provided,
however, no representation or warranty is made by Parent with respect to
statements made or incorporated by reference therein based on information
supplied by the Company specifically for inclusion or incorporation by reference
in the Proxy Statement.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. CONDUCT OF BUSINESS BY THE COMPANY. Except as set forth on
Schedule 4.1 to the Company Disclosure Schedule, as required by applicable law
or regulation and except as otherwise expressly contemplated by this Agreement,
until the earlier of the termination of this Agreement and the Effective Time,
the Company shall, and shall cause Target OP and each of their subsidiaries to,
carry on their respective businesses in the usual, regular and ordinary course
consistent with past practice and in material compliance with all applicable
laws and regulations, pay their respective debts and Taxes when due, pay or
perform their other respective obligations when due, and use commercially
reasonable efforts consistent with the terms of this Agreement to preserve
intact their current business organizations, their current business
relationships with their respective suppliers and customers, goodwill, and the
Company's status as a REIT, use commercially reasonable efforts consistent with
the other terms of this Agreement to keep available the services of their
current officers and Employees, all with the goal of preserving unimpaired their
goodwill and ongoing businesses at the Effective Time. Without limiting the
generality of the foregoing, senior officers of Parent and the Company shall
meet on a regular basis as reasonably requested by Parent to review the
financial and operational affairs of the Company, Target OP, and their
subsidiaries, to the extent permitted by applicable law. Except as set forth on
Schedule 4.1 to the Company Disclosure Schedule, as required by applicable law
or regulation and except as otherwise expressly contemplated by this Agreement
or except as previously consented to by Parent in writing, after the date hereof
until the earlier of the termination of this Agreement or the Effective Time,
without the prior consent of Parent, which consent shall not be unreasonably
withheld, conditioned or delayed, the Company shall not, and shall not permit
any subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of the Company or Target OP to its parent (x)
declare, set aside or pay any dividends on, make any other
distributions in respect of, or enter into any agreement with respect
to the voting of, any shares of any class or series of its capital
stock, (y) split, combine or reclassify any shares of any class or
series of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of, or in substitution for,
shares of any class or series of its capital stock, except upon the
exercise of Company
34
Stock Options or redemption of OP Units that are outstanding as of
the date hereof, or (z) purchase, redeem or otherwise acquire any
shares of any class or series of its capital stock, other securities
thereof or any rights, warrants or options to acquire any such shares
or other securities (other than the issuance of Company Common Stock
upon the exercise of Company Stock Options or redemption of OP Units
that are outstanding on the date hereof in accordance with their
present terms);
(ii) issue, deliver or sell any class or series of capital stock,
or any other voting securities, including, without limitation, any
restricted shares of Company Common Stock, or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities, including,
without limitation, any Company Stock Options; other than upon exercise
of Company Stock Options or redemption of OP Units;
(iii) amend its charter, by-laws, agreement of limited partnership
or other organizational instrument or agreement;
(iv) acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or any equity securities or indebtedness
of, or by any other manner, any business or any person, or otherwise
acquire or agree to acquire any assets for consideration in excess of
$500,000 in any one transaction or series of related transactions or
$1,500,000 in the aggregate;
(v) sell, lease, license, mortgage, exchange, transfer or
otherwise encumber or subject to any Lien or otherwise dispose of any
of its properties or assets, or create any security interest in such
assets or properties, other than pursuant to transactions in the
ordinary course of business and consistent with past practices;
(vi) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee, indemnify or endorse, or otherwise
become directly or indirectly responsible or liable for the obligations
of any person or, other than in the ordinary course of business or as
otherwise permitted hereunder, make any loans, advances or capital
contributions to, or investments in, any person other than its wholly
owned subsidiaries and as a result of ordinary advances and
reimbursements to employees and endorsements of banking instruments.
From the date hereof through and including the Effective Time, other
than in the ordinary course of business consistent with past practices,
neither the Company, nor any of its subsidiaries shall draw down or
borrow any monies pursuant to the Sixth Amended and Restated Revolving
Credit Agreement, dated October 31, 2002 among Rose Partnership, L.P.,
Rose Hotel Investors, Inc., Rose Leasing VII, Inc., Banc of America
Securities LLC and Bank of America, N.A.;
(vii) change in any material respect its accounting methods (or
underlying assumptions), principles or practices affecting its assets,
liabilities, businesses, inventories, cash flows, revenue or expense
recognition policies, estimates, accruals, reserves, guarantees,
amortization, discounts, returns, allowances, depreciation, goodwill
impairment, consolidation principles, contingencies, intercompany
loans, credit
35
collections, including, without limitation, any reserving,
renewal, reversal, deferral, valuation or residual method, practice or
policy, in each case, in effect on the date hereof, except as required
by changes in GAAP or regulatory accounting principles, or change in
any material respect any of its methods of reporting income and
deductions for Federal income tax purposes from those employed in the
preparation of the Federal income tax returns of the Company for the
taxable year ended December 31, 2002, except as required by changes in
law or regulation;
(viii) make or change any material Tax election, file any material
amended Tax Return, enter into any closing agreement or settle or
compromise any material liability with respect to Taxes, agree to any
material adjustment of any Tax attribute, file any claim for a refund
of Taxes, or consent to any extension or waiver of the limitation
period applicable to any Tax claim or assessment, provided, that for
purposes of this subparagraph (ix), "material" shall mean affecting or
relating to $1,000,000 of taxable income;
(ix) create, renew or amend, or take any other action that may
result in the creation, renewal, or amendment, of any agreement or
contract or other binding obligation of the Company or any of its
subsidiaries containing any material restriction on the ability of the
Company or any of its subsidiaries, taken as a whole, to conduct its
business as it is presently being conducted;
(x) (A) except in accordance with, and pursuant to, the Company's
2003 capital budget, incur any capital expenditures in an aggregate
amount in excess of $250,000 or (B) enter into any agreement obligating
the Company or any of its subsidiaries to spend more than $250,000
annually, or $2,000,000 in the aggregate, or undertake any material
commitment or material transaction of the type described in Section
3.1(f) of this Agreement, other than in the ordinary course of business
consistent with past practice;
(xi) amend or otherwise modify, except in the ordinary course of
business, in any adverse respect, or violate the terms of any of the
Company Material Contracts or other binding obligations of the Company
or its subsidiaries;
(xii) alter in any material respect, or enter into any commitment
to alter in any material respect, its interest in any corporation,
association, joint venture, partnership or business entity in which the
Company directly or indirectly holds any equity or ownership interest
on the date hereof (other than in the ordinary course of business
consistent with past practice);
(xiii) (A) grant to any current or former director, executive
officer or other Employee of the Company or any of its subsidiaries any
increase in compensation, perquisites, bonus or other benefits, except
for salary, wage, bonus or benefit increases to current Employees who
are not executive officers and which are in the ordinary course of
business, consistent with past practice, (B) grant to any such current
or former director, executive officer or other Employee of the Company
or any of its subsidiaries any increase in severance or termination
pay, (C) enter into, or amend, or take any action to
36
clarify any provision of, any Employee Plan or any employment,
deferred compensation, thrift, stock option, pension, welfare,
retirement, consulting, severance, medical, trust, termination or
indemnification agreement with any such current or former director,
executive officer or other Employee, amend, or otherwise modify, any
Company Stock Plan or (D) modify any Company Stock Option or Restricted
Stock Grant;
(xiv) except pursuant to agreements or arrangements in effect on
the date hereof and disclosed in writing and provided or made available
to Parent and except for compensation for service as an officer,
Employee or director consistent with past practice, and in all cases
solely to the extent permissible under SOXA, pay, loan or advance any
amount to, or sell, transfer or lease any properties or assets (real,
personal or mixed, tangible or intangible) to, or enter into any
agreement or arrangement with, any of its officers or directors or any
affiliate or the immediate family members or associates of any of its
officers or directors other than compensation in the ordinary course of
business consistent with past practice;
(xv) agree or consent to any material amendment or modification of
existing agreements with any Governmental Entity in respect of the
operations of its business, except (i) as required by law or (ii) to
effect the consummation of the transactions contemplated hereby;
(xvi) pay, discharge, settle, compromise or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), including taking any action to settle or
compromise any litigation, action, suit, case, investigation or
proceeding (including, without limitation, those of a judicial,
arbitral or governmental mandate) in excess of $100,000 in the
aggregate, other than any such payment, discharge, settlement,
compromise or satisfaction in the ordinary course of business,
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of
the Company included in the Company SEC Documents, or incurred since
December 31, 2002 in the ordinary course of business consistent with
past practice;
(xvii) authorize, or commit or agree to take, any of the foregoing
actions or any other action that would be reasonably likely to prevent
the Company from performing or would be reasonably likely to cause the
Company not to perform its covenants in this Agreement;
(xviii) except as contemplated by Section 5.5 of this Agreement,
issue any broadly distributed communication of a general nature to its
Employees, customers or suppliers (including general communications
relating to benefits and compensation) without the prior written
approval of Parent (which will be provided within 24 hours of
submission to Parent), except for communications in the ordinary course
of business that do not relate to the REIT Merger or the transactions
contemplated by this Agreement;
37
(xix) permit to expire, lapse or terminate or take any action
reasonably likely to result in the expiration, lapse or termination of
any insurance policies referred to in Section 3.1(o); or
(xx) take any action or fail to take any action which would result
in any of the conditions of Article VI not being satisfied.
SECTION 4.2. ADVICE OF CHANGES. Each of the Company and Target OP, on
the one hand, and Parent, Acquiror OP and REIT Merger Sub, on the other hand,
shall promptly advise the other party orally and in writing to the extent it has
Knowledge of (i) any representation or warranty made by it contained in this
Agreement that is qualified as to materiality becoming untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (ii) the failure by it to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; (iii) any suspension, termination,
limitation, modification, change or other alteration of any material agreement,
arrangement, business or other relationship with any of the Company's or any of
its subsidiaries' respective customers, suppliers, vendors, or franchisors; and
(iv) any change or event having or which would have a Material Adverse Effect on
such party or on the accuracy and completeness of its representations and
warranties or the ability of such party to satisfy the conditions set forth in
Article VI; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement; and provided further that a failure to comply with this Section
4.2 shall not constitute a failure to be satisfied of any condition set forth in
Article VI unless the underlying untruth, inaccuracy, failure to comply or
satisfy, or change or event would independently result in a failure of a
condition set forth in Article VI to be satisfied. Specifically, Parent will
inform the Company in the event its representations and warranties set forth in
Section 3.2(h) have been breached.
SECTION 4.3. NO SOLICITATION BY THE COMPANY.
(a) Until the earlier of the Effective Time or the date of
termination of this Agreement, neither the Company, Target OP, nor any of their
subsidiaries, nor any of the officers or directors of the Company, Target OP, or
any of their subsidiaries shall, and the Company shall instruct and use its
commercially reasonable efforts to cause its, Target OP's and their
subsidiaries' agents, employees, representatives and affiliates (including any
investment banker, attorney or accountant retained by it, Target OP or any of
their subsidiaries) not to, directly or indirectly, (i) solicit or initiate any
inquiries or expressions of interest regarding, or the making of any offer or
proposal which reasonably could be expected to lead to, the receipt or
submission of a Company Takeover Proposal (as defined herein), (ii) participate
in any discussions or provide any confidential or material non-public
information, data or assistance to any person relating to any Company Takeover
Proposal, (iii) except as otherwise permitted hereunder, enter into any
agreement regarding any Company Takeover Proposal, (iv) except as otherwise
permitted hereunder, make or authorize any statement, recommendation or
solicitation in support of or expressing neutrality in respect of any Company
Takeover Proposal or (v) grant any waiver or release under any "standstill" or
similar agreement entered into prior to the date of this Agreement; provided,
however, that prior to the Effective Time, the Company shall be
38
permitted to (A) engage in discussions with any person who seeks (without any
solicitation by the Company or its directors, officers, Employees, advisors,
agents or representatives in violation of this Section 4.3) to initiate
discussions relating to a Company Takeover Proposal, and (B) subject to receipt
by the Company of an executed confidentiality agreement from such person
containing customary terms for and conditions relative to transactions of such
nature, furnish such person information concerning the Company and its
subsidiaries, if and only to the extent that prior to furnishing any such
information to, or entering into discussions with, any such person, (1) the
Board of Directors of the Company determines in its good faith, after
consultation with outside legal counsel, that engaging in such discussions or
providing such information is consistent with the fiduciary duties of the
Company's Board of Directors under applicable law, (2) the Company's Board of
Directors concludes in its good faith, after consultation with its outside legal
counsel and the Company Financial Advisor (or an independent financial advisor
of nationally recognized reputation), that there is a reasonable likelihood that
such actions would lead reasonably promptly to the receipt or submission of a
Company Superior Proposal and (3) the Company provides prior written notice to
Parent of its intention to take such action. Upon the execution of this
Agreement, the Company, Target OP, their subsidiaries and their representatives
immediately shall cease and cause to be terminated all existing activities,
discussions, inquiries, investigations or negotiations with all parties (other
than Parent, Acquiror OP, REIT Merger Sub and their respective directors,
officers, agents, representatives and advisors) with respect to any Company
Takeover Proposal or proposed transaction which could lead to a Company Takeover
Proposal.
For purposes of this Agreement, "Company Takeover Proposal" means any
inquiry, expression of interest, term sheet, letter of intent, proposal or offer
from any person relating to any (i) acquisition, purchase, lease, exchange,
sale, joint venture, or mortgage (in a single transaction or series of related
transactions) of 20% or more of the consolidated assets of the Company and its
subsidiaries, excluding bona fide financing transactions, which do not have as a
purpose or effect, the sale or transfer of control of such assets, (ii) offer,
sale, issuance or purchase (in a single transaction or series of related
transactions) of 20% or more of the Equity Securities (as defined in Section
3(a)(11) of the Exchange Act) or voting debt securities of the Company, (iii)
tender or exchange offer which, if consummated, would result in any person
acquiring beneficial ownership of 20% or more of the Equity Securities or voting
debt securities of the Company, (iv) merger, consolidation, share exchange,
business combination, reorganization, recapitalization, liquidation,
dissolution, reincorporation or similar transaction involving the Company, (v)
the effectuation by the Company of a transaction that would involve either a
change in or reconstitution of the Company's outstanding capital stock or a
distribution of assets of any kind to the holders thereof, (vi) repurchase by
the Company or any of its subsidiaries of shares of the Company's capital stock
or voting debt securities, or (vii) public announcement by the Company or any
other person of a proposal, plan or intention to pursue, enter into or
consummate any of the foregoing (in each case, except any of the transactions
contemplated hereby).
For purposes of this Agreement, a "Company Superior Proposal" means any
unsolicited bona-fide, written proposal or offer (setting forth the price and
structure, made by any person (other than Parent, Acquiror OP, REIT Merger Sub
or an affiliate thereof) to acquire, directly or indirectly, including pursuant
to a tender or exchange offer, merger, consolidation, share exchange, business
combination, recapitalization, reincorporation, or other similar transaction
39
(including any change-in-control of the type contemplated by Rule 14f-1 under
the Exchange Act), 100% of the combined voting power of the Company's capital
stock then outstanding or all or substantially all of the consolidated assets of
the Company and which the Board of Directors of the Company determines in good
faith, after consultation with outside legal counsel and the Company Financial
Advisor (or an independent financial advisor of nationally recognized
reputation), would be more favorable to the holders of Company Common Stock than
the REIT Merger and the holders of OP Units than the OP Merger and is reasonably
capable of being consummated in a timely manner, taking into account the
financial, regulatory, legal and other aspects of such proposal or offer.
(b) Except as expressly permitted by the following paragraph of
this Section 4.3(b), neither the Board of Directors of the Company nor any
committee thereof shall (i) withdraw, modify or qualify, or propose publicly to
withdraw, modify or qualify, in any manner adverse to Parent, the approval or
adoption of the Agreement, the REIT Merger or the Company Recommendation or take
any action or make any statement in connection with the Company Shareholders
Meeting inconsistent with such approval, adoption or Company Recommendation
(collectively, a "Change in the Company Recommendation"), (ii) approve or
recommend, or propose publicly to approve or recommend, any Company Takeover
Proposal, or (iii) cause the Company or any of its subsidiaries to enter into
any letter of intent, agreement-in-principle, memorandum of understanding, term
sheet, agreement, contract, commitment, plan or arrangement (each, a "Company
Acquisition Agreement") related to any Company Takeover Proposal.
Notwithstanding the foregoing, if in response to a Company Takeover
Proposal from any person which is not received in violation of this Section 4.3,
the Board of Directors of the Company determines in good faith, after
consultation with its outside legal counsel and the Company Financial Advisor
(or an independent financial advisor of nationally recognized reputation), that
such Company Takeover Proposal constitutes a Company Superior Proposal, subject
to payment of the fee required to be paid by the Company to Parent pursuant to
Section 5.4(b), the Board of Directors of the Company may, (A) at any time prior
to the Company Shareholders Meeting, effect a Change in the Company
Recommendation or, (B) terminate this Agreement and enter into a Company
Acquisition Agreement with respect to such Company Superior Proposal; provided,
however, that at least three business days prior to taking any of the actions
set forth in clause (B) of this paragraph, the Company's Board of Directors
theretofore shall have provided Parent written notice advising Parent that the
Company's Board of Directors is prepared to conclude that such Company Takeover
Proposal constitutes a Company Superior Proposal and during such three business
day period the Company and its agents, representatives and advisors shall have
negotiated diligently and in good faith with Parent for purposes of making
adjustments to and/or amendments in the terms and conditions of this Agreement
such that such Company Takeover Proposal would no longer constitute a Company
Superior Proposal and after fully considering any such adjustment or amendment
the Company's Board of Directors determines in good faith, after consultation
with its outside legal counsel and the Company Financial Advisor (or an
independent financial advisor of nationally recognized reputation), that such
Company Takeover Proposal constitutes a Company Superior Proposal; it being
hereby intended and agreed that the Company shall not enter into any Company
Acquisition Agreement with respect to such Company Superior Proposal (or propose
publicly to do so) prior to the expiration of such three-business day period.
40
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 4.3, the Company shall advise Parent
orally and within 24 hours in writing of any request for information relating to
a Company Takeover Proposal, or of any Company Takeover Proposal, the material
terms and conditions of such request or Company Takeover Proposal and the
identity of the person making such request or Company Takeover Proposal, and
shall promptly provide a copy of any written request or Company Takeover
Proposal to Parent, and any information and/or documents provided by the
Company, the OP or any of their subsidiaries to the person making such request
or Company Takeover Proposal to the extent not previously furnished to Parent.
The Company will keep Parent promptly informed, on a current basis and in
reasonable detail, of the status and details (including amendments or proposed
amendments) of any such request or Company Takeover Proposal.
(d) Nothing contained in this Section 4.3 shall prohibit the
Company from taking and disclosing to its shareholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure if the Board of Directors of the Company, after consultation with
outside legal counsel, determines in good faith that such disclosure is
consistent with its obligations under applicable law; provided, however, any
such disclosure relating to a Company Takeover Proposal shall be deemed to be a
Change in the Company Recommendation if it otherwise has the effect described in
clause (i) of Section 4.3(b) above.
SECTION 4.4 CERTAIN TAX MATTERS. During the period from the date of
this Agreement to the Effective Time, the Company shall, and shall cause Target
OP and each of their subsidiaries to: (i) timely file (taking into account any
extensions of time within which to file) all Tax Returns ("Post-Signing
Returns") required to be filed by it and such Post-Signing Returns shall be
prepared in a manner reasonably consistent with past practice; (ii) timely pay
all Taxes shown as due and payable on such Post-Signing Returns that are so
filed; (iii) make provision in their books and records and financial statements
in accordance with past practice for all Taxes payable by it for which no
Post-Signing Return is due prior to the Effective Time; and (iv) promptly notify
Parent of any material suit, claim, action, investigation, proceeding or audit
pending against or with respect to the Company or any of its subsidiaries in
respect of any Tax matter, including (without limitation) liabilities for Taxes
and refund claims; (v) prepare the demand for written statements from
shareholders of record disclosing such ownership as is required by Section
1.856-8 of the Treasury Regulations; and (vi) facilitate all reasonable requests
of Parent with respect to maintenance of the Company's REIT status for the
Company's 2003 taxable year.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. PREPARATION OF THE PROXY STATEMENT; COMPANY SHAREHOLDERS
MEETING.
(a) As promptly as reasonably practicable following the date of
this Agreement, the Company shall prepare and file with the SEC (and Parent
shall cooperate and participate in the preparation of) the Proxy Statement. The
Company shall use its commercially reasonable efforts to have the Proxy
Statement "cleared" by the SEC's staff for mailing in
41
connection with the Company Shareholder Meeting as promptly as reasonably
practicable after such filing. Subject to Section 4.3(b), as promptly as
reasonably practicable after the Proxy Statement is cleared by the SEC, the
Company shall cause the Proxy Statement (in definitive form) to be mailed to the
shareholders of the Company.
(b) If at any time prior to the Effective Time there shall occur
(i) any event with respect to the Company or any of its subsidiaries, or with
respect to other information regarding the Company or any of its subsidiaries in
the Proxy Statement or (ii) any event with respect to Parent, or with respect to
information supplied by Parent for inclusion in the Proxy Statement, in either
case, which event is required to be described in an amendment of, or a
supplement to, the Proxy Statement, such event promptly shall be so described by
the Company to Parent or by Parent to the Company, as the case may be, and such
amendment or supplement shall be promptly filed by the Company with the SEC and,
as required by law, disseminated to the shareholders of the Company.
(c) The Company shall promptly notify Parent of the receipt of any
comments from the SEC or its staff or any other appropriate government official
and of any requests by the SEC or its staff or any other appropriate government
official for amendments or supplements to any of the filings with the SEC in
connection with the REIT Merger and the other transactions contemplated hereby
or for additional information, and shall supply Parent with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff or any other appropriate government official, on
the other hand, with respect thereto. The Company shall use its commercially
reasonable efforts to respond to any comments of the SEC with respect to the
Proxy Statement as promptly as reasonably practicable after the receipt thereof.
Parent shall cooperate with the Company and provide to the Company all
information about Parent necessary to prepare the Proxy Statement.
(d) Subject to Section 4.3(b), the Company shall, as promptly as
reasonably practicable after the Proxy Statement is cleared by the SEC, duly
call, give notice of, convene and hold the Company Shareholders Meeting in
accordance with the TBCA, the Charter and by-laws, as applicable, for the
purpose of obtaining the Company Shareholder Approval and, through its Board of
Directors, recommend to the Company's shareholders that they affirmatively vote
for the approval of this Agreement (the "Company Recommendation"). Subject to
Section 4.3(b), the Company shall solicit from the holders of Company Common
Stock proxies in favor of approval of this Agreement and shall take all other
lawful action reasonably necessary and reasonably desirable to obtain the
Company Shareholder Approval including, without limitation, engaging a proxy
solicitation firm. Without limiting the generality of the foregoing, the Company
agrees that its obligations pursuant to the first sentence of this Section
5.1(d) shall not be affected by the making, commencement, public announcement,
public disclosure, submission, receipt or communication to the Company or its
shareholders or professional advisors or representatives of any Company Takeover
Proposal.
SECTION 5.2. ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to
the confidentiality agreement, dated February 11, 2003 (the "Confidentiality
Agreement"), by and between Parent and the Company, and subject to applicable
laws and regulations, the Company and Target OP shall afford to Parent and to
the officers, current employees, accountants, counsel, financial advisors,
agents, lenders and other representatives of Parent and its subsidiaries,
reasonable
42
access during normal business hours during the period prior to the Effective
Time to all the respective properties, books, contracts, commitments, personnel
and records of the Company and its subsidiaries and, during such period, the
Company and Target OP shall furnish promptly to the Parent (a) a copy of each
material report, schedule, registration statement and other document filed by it
with any Governmental Entity and (b) such other information concerning its
business, properties and personnel as Parent may reasonably request. No review
of information, documentation or materials by Parent pursuant to this Section
5.2 shall affect any representation or warranty made by the Company to Parent;
provided, however, that Parent will notify the Company promptly of any facts,
information, documentation or materials which come to Parent's attention during
the course of its review pursuant to this Section 5.2 which lead Parent to
believe that any of the Company's representations or warranties herein are
inaccurate or incomplete. The Company and Parent will hold, and will cause each
of their respective officers, current employees, accountants, counsel, financial
advisors, agents, lenders and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of Confidentiality Agreement.
Notwithstanding anything to the contrary contained in this Agreement, each of
Parent and the Company (and each employee, representative, or other agent of
Parent or the Company) may disclose to any and all persons, without limitation
of any kind, the tax treatment and tax structure of the transactions
contemplated by this Agreement and all materials of any kind (including opinions
or other tax analyses) that are provided to it relating to such tax treatment
and tax structure.
SECTION 5.3. COMMERCIALLY REASONABLE EFFORTS.(a) Except where otherwise
provided in this Agreement, each of the parties hereto shall use its
commercially reasonable efforts to take promptly or cause to be taken all
actions, and to do promptly or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper and advisable
under applicable law and this Agreement to consummate and make effective the
Mergers and the other transactions contemplated by this Agreement, including (i)
the obtaining of all necessary actions or nonactions, waivers, consents,
authorizations, permissions and approvals from Governmental Entities and the
making of all necessary registrations and filings and the taking of all steps as
may be necessary to obtain a waiver, consent, authorization, permission or
approval from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary waivers, consents, authorizations,
permissions and approvals from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Mergers, this Agreement or the consummation of the transactions
contemplated by this Agreement, and (iv) the execution and delivery of all
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement, including, without
limitation, (A) the preparation of any Employee Plan documents required under
ERISA and/or the Code, (B) the amendment or filing of any document required by
any Governmental Entity and/or any disclosure document to participants under
ERISA and/or the Code.
(b) In connection with and without limiting the generality of the
foregoing, the Company shall (i) use its best efforts to ensure that no State
Takeover Law is or becomes applicable to Parent or REIT Merger Sub or to the
Merger or to this Agreement or any of the transactions contemplated hereby, and
(ii) if any State Takeover Law becomes applicable to the Merger or to this
Agreement or the transactions contemplated hereby, take all action necessary to
ensure that the Merger and the transactions contemplated by this Agreement may
43
be consummated as promptly as practicable on the terms contemplated hereby and
otherwise to minimize the effect of such State Takeover Law on the Merger, this
Agreement and the transactions contemplated hereby.
SECTION 5.4. FEES.
(a) Except as provided in this Section 5.4, all fees and expenses
incurred in connection with the Mergers, this Agreement (including all
instruments and agreements prepared and delivered in connection herewith), and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Mergers are consummated.
(b) (i) If this Agreement is terminated by Parent pursuant to
Section 7.1(c) then upon such termination the Company shall pay (or cause to be
paid) to Parent by wire transfer of same day funds to an account designated in
writing by Parent to the Company, a fee of $15.0 million.
(ii) If (x) a Pre-Termination Company Takeover Proposal
Event shall occur and thereafter this Agreement is terminated
either by Parent or the Company pursuant to Section 7.1(b)(ii) and
(y) prior to the termination of the 12 month period immediately
following such termination, the Company consummates a transaction
pursuant to that particular Company Takeover Proposal or enters
into or publicly announces a Company Acquisition Agreement with
the third party involved in the Pre-Termination Company Takeover
Proposal Event, then on the earliest to occur of the date such
Company Takeover Proposal is consummated or such Company
Acquisition Agreement is entered into or publicly announced, the
Company shall pay (or cause to be paid) to Parent by wire transfer
of same day funds to an account designated in writing by Parent to
the Company, a fee of $15 million.
(iii) If this Agreement is terminated by the Company
pursuant to Section 7.1(d), then upon such termination the Company
shall pay (or cause to be paid) to Parent, by wire transfer of
same day funds to an account designated in writing by Parent to
the Company, a fee of $15 million.
(iv) If this Agreement is terminated by Parent pursuant to
Section 7.1(h), then upon such termination, Parent shall pay, (or
cause to be paid) to the Company, by wire transfer of same day
funds to an account designated in writing by the Company to
Parent, a fee of $12.5 million.
(v) For purposes of this Section 5.4(b), a "Pre-Termination
Company Takeover Proposal Event" shall be deemed to occur if,
prior to the event giving rise to the right to terminate this
Agreement and, in all cases, subject to the requirements and
obligations of the Company set forth in Sections 4.3 and 5.1, a
Company Takeover Proposal shall have been made known to the
Company or any of its subsidiaries or made directly to the
Company's shareholders generally or any person shall have publicly
announced an intention (whether or not
44
conditional) to make a Company Takeover Proposal, and such
Company Takeover Proposal or public announcement shall not have
been irrevocably withdrawn at least seven business days prior to
the Company Shareholders Meeting.
(vi) The Company and Parent acknowledge that the agreements
contained in this Section 5.4(b) are an integral part of the
transactions contemplated by this Agreement and that without these
agreements neither would have been induced to enter into this
Agreement. Accordingly, if either fails to pay the amounts due to
the other pursuant to this Section 5.4(b), and, to obtain such
payment, the party to whom payment is required to be made
commences a suit which results in a judgment against the
non-paying party for the fee set forth in this Section 5.4(b), the
non-paying party shall pay to the other all of its reasonable
costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on
the amount of the fee at the rate on six-month U.S. Treasury
obligations plus 300 basis points in effect on the date such
payment was required to be made.
(vii) It is expressly agreed that the amounts to be paid
pursuant to this Section 5.4(b) constitute liquidated damages
negotiated at arm's-length and do not constitute, and are not
intended by the parties to operate as, a penalty, and any such
amounts paid shall constitute the sole and exclusive remedy of the
party receiving such payment under the events and circumstances
giving rise thereto as specified in this Agreement and neither
party shall (A) seek to obtain any other recovery or judgment
against the other or any of the other parties' officers,
directors, Employees, partners, managers, members or shareholders
or (B) be entitled to seek or obtain any other damages of any
kind, including, without limitation, consequential, indirect or
punitive damages.
(c) If this Agreement is terminated for any reason, (regardless of
whether Parent is in breach of any of the provisions contained herein), and in
addition to whether a termination fee is payable by either Parent or Company,
upon such termination, the Company shall pay (or cause to be paid) to Parent by
wire transfer of same day funds to an account designated in writing by Parent to
the Company, a fee of $250,000 as reimbursement for Parent's expenses incurred
in connection with the matters contemplated by this Agreement without the need
for Parent to substantiate such expenses.
(d) Notwithstanding anything to the contrary, in the event a fee
is payable by either of Parent to the Company or the Company to Parent (in each
case the payor of the fee being referred to in this Section 5.4(c) as the
"Payor" and the recipient of the fee being referred to in this Section 5.4(c) as
the "Recipient REIT"), the maximum amount that shall be paid to the Recipient
REIT for the taxable year in which this Agreement is terminated shall be an
amount equal to the lesser of (A) the amount required to be paid pursuant to the
provisions of subsection 5.4(b) above and (B) the sum of (i) the maximum amount
that can be paid to the Recipient REIT without causing it to fail to meet the
requirements of Section 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute income described in Section 856(c)(2)
and (3) of the Code ("Qualifying Income"), as determined by outside counsel or
45
independent accountants to the Recipient REIT, and (ii) in the event the
Recipient REIT receives a letter from outside counsel (the "Recipient REIT
Break-Up Tax Opinion") indicating that the Recipient REIT has received a ruling
from the IRS holding that the receipt by the Recipient REIT of the amount
referred to in (A) above would either constitute Qualifying Income as to the
Recipient REIT or would be excluded from the Recipient REIT's gross income for
purposes of Section 856(c)(2) and (3) of the Code (the "REIT Requirements"), the
amount referred to in (A) above less the amount payable under clause (B)(i)
above. In the event that the Recipient REIT receives less than the amount
referred to in (A) above the Payor shall place the unpaid amount (i.e., the
difference between the amount referred to in (A) above and the amount actually
paid to the Recipient REIT pursuant to this subsection 5.4(c)) in escrow (the
"Escrowed Amount"), and shall not release any portion thereof to the Payor or
Recipient REIT unless and until the Payor receives any one or a combination of
the following: (i) a letter(s) from the Recipient REIT's outside counsel or
independent accountants indicating the maximum amount that can be paid at that
time to Recipient REIT without causing the Recipient REIT to fail to meet the
REIT Requirements for any relevant taxable year, together with an IRS ruling or
opinion of tax counsel to the effect that such payment should not be treated as
included in the income of the Recipient REIT for any prior taxable year, in
which event such maximum amount shall be paid to the Recipient REIT, or (ii) a
Recipient REIT Break-Up Tax Opinion indicating that the Recipient REIT's receipt
of the Escrowed Amount would satisfy, in whole or in part, the REIT
Requirements, in which event such portion of the Escrowed Amount shall be
released and paid to the Recipient REIT. The Payor's obligation to pay any
unpaid portion of the Escrowed Amount (provided the Payor has otherwise complied
with its obligations under this provision) shall terminate and any Escrowed
Amount still held in such escrow shall be released to the Payor on the date that
is five years from the date that any amount described in subsection 5.4(b) first
becomes due under this Agreement.
SECTION 5.5. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing, and shall use their good faith efforts to
provide each other at least 24 hours to review, comment upon and concur with and
shall use reasonable efforts to agree upon on a timely basis (which shall be no
more than 48 hours after receipt), any press release or other public statements
or announcements (including pursuant to Rule 14a-12 under the Exchange Act) and
shall not issue any such press release or make any such public statement or
announcement prior to such consultation, except as either party may determine is
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or inter-dealer
quotation system of a registered national securities association (provided prior
notice is given to the other party with a copy of any such disclosure) and
except for any discussions with rating agencies, lenders, or franchisors. The
parties agree that the initial press releases (or joint press release if the
parties so determine) to be issued with respect to the REIT Merger, this
Agreement and the transactions contemplated by this Agreement shall be in the
form heretofore agreed to by the parties.
SECTION 5.6. CONVEYANCE TAXES. Parent and the Company shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer, real
property transfer gains, sales, use, transfer, value added, stock transfer and
stamp Taxes, any transfer, recording, registration and other fees or any similar
Taxes which become payable in connection with the transactions contemplated by
this Agreement that are required or permitted to be filed on or before the
Effective Time, and each
46
party further agrees to take such reporting positions and other action as
reasonably required to effectuate the intention and purposes of this Section
5.6.
SECTION 5.7. STANDSTILL AGREEMENTS; CONFIDENTIALITY AGREEMENT. During
the period from the date of this Agreement through the Effective Time, the
Company shall use its commercially reasonable efforts to enforce, to the fullest
extent permitted under applicable law, the provisions of any confidentiality or
standstill agreement to which the Company or any of its subsidiaries is a party,
including by using its commercially reasonable efforts to obtain injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of competent jurisdiction.
SECTION 5.8. SECURITIES PURCHASE. Within 24 hours following the
execution of this Agreement, the Company will issue and sell to Parent and
Parent will purchase from the Company, by wire transfer of immediately available
funds, 1,000,000 shares of Company Common Stock at a purchase price of $12.35
per share, for an aggregate purchase price of $12,350,000. Such Company Common
Stock will be issued pursuant to the Company's registration statement on Form
S-3 and when issued will be validly issued, fully paid and non-assessable.
SECTION 5.9. PROFESSIONAL REPORTS - SURVEYS.
(a) Access to Properties. As soon as practicable after the date
hereof, the Company and its subsidiaries shall provide Parent, REIT Merger Sub
and its agents and representatives access to the Owned Properties prior to
Closing for purposes of obtaining surveys of each of the Owned Properties. It is
acknowledged by the parties hereto that the Company and its subsidiaries' only
obligation hereunder shall be to provide access to (and not surveys of) the
Owned Properties. The cost of obtaining the surveys shall be borne exclusively
by Parent. Parent shall notify the Company promptly of any facts, information,
documentation or materials which come to Parent's attention during the course of
its review pursuant to this Section 5.9(a) which lead Parent to believe that any
of the Company's representations or warranties herein are inaccurate or
incomplete.
(b) Access to Properties - Environmental, Engineering, Structural
and Seismic Reports. The Company and its subsidiaries shall provide Parent, REIT
Merger Sub and its agents and representatives access to the Owned Properties
prior to Closing for the purpose of physically inspecting the Owned Properties
and performing engineering reviews, structural reviews, seismic reviews and
Phase I Environmental Site Assessments. If any report suggests that additional
investigations or studies should be conducted on any particular Owned Property,
the Company, and each of its subsidiaries, upon Parent's request, shall make
such Owned Property available for reasonable additional investigations. It is
acknowledged by the parties hereto that the Company and its subsidiaries only
obligation hereunder shall be to provide access to (and not such reports of) the
Owned Properties. The cost of these inspections and obtaining these reports
shall be borne exclusively by Parent. Parent shall notify the Company promptly
of any facts, information, documentation or materials which come to Parent's
attention during the course of its review pursuant to this Section 5.9(b) which
lead Parent to believe that any of the Company's representations or warranties
herein are inaccurate or incomplete.
47
SECTION 5.10. COMPANY STOCK OPTIONS. From and after the date hereof
through and including the Closing Date, the Company shall use its commercially
reasonable efforts to obtain, prior to the Effective Time, the Optionee Consent
Letters to effect the acceleration and cancellation of all Company Stock Options
in exchange for payment of the Option Consideration as described in Section 2.5.
Each holder of any such Company Stock Option shall be paid by the Company or
Rose Managers, Inc., a subsidiary of the Company, at or immediately prior to the
Effective Time for each such outstanding Company Stock Option in accordance with
the terms set forth in Section 2.5 hereof.
SECTION 5.11. INDEMNIFICATION.
(a) All rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time now existing
in favor of the current or former directors or officers of the Company or any of
its subsidiaries (the "Indemnified Parties") as provided in their respective
charters, by-laws (or other comparable organizational instruments and
agreements) and any existing indemnification agreements or arrangements of the
Company or any of its subsidiaries shall survive the Mergers as obligations of
Surviving Corporation and shall continue in full force and effect in accordance
with their terms for a period of four years following the Effective Time and for
so long as any claim against any such officer or director is brought within such
four-year period, until a final, non-appealable judgment is rendered with
respect thereto. Parent shall cause the Surviving Corporation to maintain
shareholders' equity of not less than $300,000,000 during such period. In the
event Parent fails to cause the Surviving Corporation to maintain shareholder's
equity in such amount, such indemnification obligations to such officers and
directors shall become and be direct obligations of Parent.
(b) Parent shall cause the Surviving Corporation or any successor
thereto, whether by consolidation, merger or transfer of substantially all of
its properties or assets, to comply with its obligations under this Section
5.11. The provisions of this Section 5.11 shall survive the Effective Time and
are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
SECTION 5.12. RESIGNATIONS.
On or before the Effective Time, the Company shall (i) cause the
directors and officers of each of the Company and its subsidiaries to submit
their resignations from such positions.
SECTION 5.13. EMPLOYEE ARRANGEMENTS.
(a) Prior to the Closing, the Company, and after the Effective
Time, Parent and REIT Merger Sub, shall honor, and shall cause their
subsidiaries to honor, in accordance with their terms all severance agreements
or arrangements listed on Schedule 5.13 of the Company Disclosure Schedule (the
"Company Severance Agreements") and Parent will not, and will not cause any of
Parent's subsidiaries to, challenge the validity of any obligation under any
such Company Severance Agreement. Without limiting the foregoing, Parent
expressly agrees that, with respect to the persons who are parties to the
Company Severance Agreements, the REIT Merger shall constitute a change in
control for purposes of their respective Company
48
Severance Agreements and Rose Managers, Inc., a subsidiary of the Company,
shall make the payments described on Schedule 5.13 at or immediately prior to
the Closing.
(b) Prior to the Effective Time, the Company shall cause each
officer, director or other employee who has any outstanding loan from, or other
debt obligations to, the Company or any of its subsidiaries for any purpose, to
repay such loan. Any non-compete agreements applicable to officers of the
Company or any of its subsidiaries shall be waived, terminated and of no further
force and effect effective as of the Effective Time.
SECTION 5.14. COMPANY STOCK PLANS. Promptly after the execution of this
Agreement, the Company's Board of Directors will authorize the termination of
the Company Stock Plans effective upon consummation of the Mergers and the
transactions contemplated herein and the Company shall, as soon as reasonably
practicable following the date hereof, take all actions necessary to suspend
issuances under the Company Stock Plans.
SECTION 5.15. REVPAR. On or before each Tuesday of each week ending on
or after the date hereof, the Company shall provide Parent with a report
certified by its chief financial officer, setting forth the "Revpar" generated
by the Company for the prior week and for the same week during calendar year
2002. On the fifth day immediately preceding the date of the Company Shareholder
Meeting, the Company shall provide such certified report for the 30 and 60 days
then ended and for the same 30 and 60 days during calendar year 2002. As used
herein "Revpar" shall have the meaning set forth in the definition of "Revpar"
contained in the definition of "Material Revpar Change."
SECTION 5.16. RESOLUTIONS. Each of the Company and Parent will provide
the other with copies of the resolutions adopted by their respective Boards of
Directors with respect to the Mergers and the transactions contemplated hereby,
in a form certified by such parties' corporate secretary.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The respective obligation of each party to effect the REIT Merger is
subject to the satisfaction or, to the extent permitted by applicable law,
waiver by each of Parent and the Company on or prior to the Closing Date of the
following conditions:
(a) Shareholder and Partner Approval. The Company Shareholder
Approval and the OP Partner Approval shall have been obtained.
(b) Governmental and Regulatory Approvals. Other than the filing
of the Certificate of REIT Merger, Articles of REIT Merger and Certificates of
OP Merger provided for under Section 1.4, all consents, approvals and actions
of, filings with and notices to any Governmental Entity required by the Company,
Target OP, Parent or any of their subsidiaries under applicable law or
regulation to consummate the Mergers and the transactions contemplated by this
Agreement, the failure of which to be obtained or made would result in a
Material Adverse Effect on Parent's ability to conduct the business of the
Company in substantially the
49
same manner as presently conducted, shall have been obtained or made (all such
approvals and the expiration of all such waiting periods, the "Requisite
Regulatory Approvals")
(c) No Injunctions or Restraints. No judgment, order, restraining
order and/or injunction (temporary or otherwise), decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued
by any court or other Governmental Entity or other legal restraint or
prohibition (collectively, "Restraints") shall be in effect preventing or
materially delaying the consummation of the Mergers; provided, however, that
each of the parties shall have used its best efforts to have such Restraint
lifted, vacated or rescinded; and provided, further that if such Restraint is
not lifted, vacated or rescinded (and all litigation, if any, in respect thereof
terminated or withdrawn) by the fifth business day next preceding the Company
Shareholders Meeting, the condition in this Section 6.1(c) shall be deemed not
to be satisfied.
SECTION 6.2. CONDITIONS TO OBLIGATIONS OF PARENT, ACQUIROR OP AND REIT
MERGER SUB. The obligation of Parent, Acquiror OP and REIT Merger Sub to effect
the Mergers (it being the intention of the parties hereto that, to the extent
feasible, the Mergers must be consummated simultaneously or otherwise promptly
one after the other) is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth herein and in the Company Disclosure
Schedule that are qualified as to materiality shall be true and correct in all
respects at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case such
representations and warranties shall be true and correct as of such date), and
the representations and warranties of the Company not so qualified as to
materiality shall be true and correct in all material respects. Parent shall
have received a certificate of the Company's Chief Executive Officer and Chief
Financial Officer to the foregoing effect.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be performed
by it at or prior to the Closing Date under this Agreement. Parent shall have
received a certificate of the Company's Chief Executive Officer and Chief
Financial Officer to the foregoing effect.
(c) State Takeover Laws. Consummation of the Mergers and the
transactions contemplated by this Agreement shall not be subject to the
provisions of any State Takeover Law.
(d) Resignation of Board of Directors and Executive Officers. Each
member of the Company's Board of Directors and each executive officer of the
Company shall have resigned, effective no later than the Effective Time of the
Merger.
(e) Opinion Relating to REIT Status. Parent shall have received an
opinion dated as of the Closing Date of Hunton & Xxxxxxxx LLP, in the form
attached as Schedule 6.2(e) of the Company Disclosure Letter, regarding the
qualification of the Company as a REIT under the Code. For purposes of such
opinion, Hunton & Xxxxxxxx LLP may rely on (in addition to customary assumptions
and representations for opinions of this type) assumptions to the effect
50
no action will be taken following the REIT Merger that is inconsistent with the
Company's status as a REIT for any period prior to the REIT Merger.
(f) No Material Revpar Change. There shall not have occurred a
Material Revpar Change with respect to the Company.
(g) Company Stock Options. The Company shall have taken all action
(with evidence satisfactory to the Parent) to cause all Company Stock Options
with an exercise price equal to or greater than the per share Merger
Consideration to have been exercised or accelerated and canceled as contemplated
by Sections 2.5 and 5.11.
(h) Flagstone Agreement. Within 15 business days after the date
hereof, Parent shall have received from Flagstone Hospitality Management, LLC a
duly executed Flagstone Agreement substantially in the form attached hereto as
Exhibit D.
(i) Certain Material Consents. The Company shall have procured any
necessary consents of any third parties required by the agreements listed in
Schedule 6.2(i) to the Company's Disclosure Schedule.
SECTION 6.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND TARGET OP.
The obligation of the Company and Target OP to effect the Mergers (it being the
intention of the parties hereto that, to the extent feasible, the Mergers must
be consummated simultaneously or otherwise promptly one after the other) is
further subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent, Acquiror OP and REIT Merger Sub set forth herein that is
qualified as to materiality shall be true and correct in all respects at and as
of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case such representations and
warranties shall be true and correct as of such date), and the representations
and warranties of Parent not so qualified as to materiality shall be true and
correct in all material respects. The Company shall have received a certificate
of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing
effect.
(b) Performance of Obligations of Parent, Acquiror OP and REIT
Merger Sub. Parent, Acquiror OP and REIT Merger Sub shall have performed all
obligations required to be performed in all material respects by each of them at
or prior to the Closing Date under this Agreement. The Company shall have
received a certificate of Parent's Chief Executive Officer and Chief Financial
Officer to the foregoing effect.
SECTION 6.4. FRUSTRATION OF CLOSING CONDITIONS. No party may rely on
the failure of any condition set forth in Section 6.1, 6.2 or 6.3, as the case
may be, to be satisfied if such failure was caused by such party's failure to
use its own commercially reasonable efforts to consummate the Mergers and the
other transactions contemplated by this Agreement, as required by and subject to
Section 5.3.
51
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether or not the Company Shareholder Approval has
been obtained:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the REIT Merger shall not have been consummated at or
prior to 5:00 p.m., Eastern Standard Time, on December 20, 2003,
provided, however, that the right to terminate this Agreement
pursuant to this Section 7.1(b)(i) shall not be available to any
party whose failure to perform any of its obligations under this
Agreement results in the failure of the REIT Merger to be
consummated by such time and date;
(ii) if the Company Shareholder Approval shall not have been
obtained at the Company Shareholders Meeting or any adjournments
thereof; or
(iii) if any Restraint having any of the effects set forth in
Section 6.1(c) shall be in effect and shall have become final and
nonappealable; provided, however, that the party seeking to
terminate this Agreement pursuant to this Section 7.1(b)(iii)
shall have used its reasonable best efforts to prevent the entry
of such Restraint and to have such Restraint vacated or removed;
(c) by Parent, if (i) the Company shall have failed to make the
Company Recommendation in the Proxy Statement, (ii) the Company shall have
effected a Change in the Company Recommendation in accordance with the
provisions of Section 4.3(b) or (iii) the Company shall have effected a Change
in the Company Recommendation in violation of the terms of this Agreement), or
(iv) the Company shall have breached its obligations under this Agreement by
reason of a failure to duly notice, call or convene the Company Shareholders
Meeting in accordance with Section 5.1(d) hereof;
(d) by the Company in accordance with clause (B) of the second
paragraph of Section 4.3(b); provided, however, that for the termination of this
Agreement pursuant to this paragraph (d) to be deemed effective, the Company
first shall have complied with the provisions of Section 4.3, including the
payment to Parent of the fee required by paragraph (b) (iii) of Section 5.4;
(e) by Parent, if the Company shall have breached any of its
representations, warranties, covenants or other agreements contained in this
Agreement, which breach (i) would give rise to the failure of a condition set
forth in Section 6.2(a) or (b), and (ii) is either incapable of being cured by
the Company or, if curable, is not cured within 30 days of receipt from Parent
of written notice thereof;
(f) by the Company, if Parent shall have breached any of its
representations, warranties, covenants or other agreements contained in this
Agreement, which breach (i) would
52
give rise to the failure of a condition set forth in Section 6.3(a) or (b), and
(ii) is either incapable of being cured by Parent or, if curable, is not cured
within 30 days of receipt from the Company written notice thereof;
(g) by Parent prior to the Company Shareholder Meeting, if a
Material Revpar Change shall have occurred; or
(h) by Parent prior to the Company Shareholder Meeting, in its
sole discretion and for any reason not set forth above, by payment to the
Company of the fee set forth in paragraph (iv) of Section 5.4(b).
The party desiring to terminate this Agreement pursuant to clause (b),
(c), (d), (e), (f), (g) or (h) of this Section 7.1 shall provide written notice
of such termination to the other parties in accordance with Section 8.2,
specifying in reasonable detail the provision hereof pursuant to which such
termination is effected and the basis for such termination.
SECTION 7.2. EFFECT OF TERMINATION. If this Agreement is terminated by
either the Company or Parent as provided in Section 7.1, this Agreement
forthwith shall become void and have no effect, without any liability or
obligation on the part of Parent or the Company, other than that the provisions
of Section 5.4, this Section 7.2 and Article VIII shall survive such
termination.
SECTION 7.3. AMENDMENT. This Agreement may be amended by the parties at
any time before or after the receipt of the Company Shareholder Approval and
prior to the filing of the Certificate of REIT Merger, Articles of REIT Merger
and Certificates of OP Merger; provided, however, that after Company Shareholder
Approval, there shall not be made any amendment that alters the amount or
changes the form of the REIT Merger Consideration or the OP Merger Consideration
or alters or changes any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the shareholders of the Company or
the OP Unit holders. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties to be bound thereby.
SECTION 7.4. EXTENSION; WAIVER. At any time prior to the Effective
Time, a party may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. 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 VIII
GENERAL PROVISIONS
SECTION 8.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant
53
to this Agreement shall survive the Effective Time. This Section 8.1 shall not
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 8.2. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or REIT Merger Sub, to:
CNL Hospitality Partners, L.P.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Fax No.: (000) 000-0000
Attention: Corporate General Counsel
with a copy (which shall not constitute notice pursuant to
this Section 8.2) to:
Xxxxxxxxx Traurig, LLP
The MetLife Building
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax No.: (000) 000-0000
Attention: Xxxxxx X. Xxxxx, Esq.
if to the Company, to:
RFS Hotel Investors, Inc.
000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxx, Xxxxxxxxx 00000
Fax No.: (000) 000-0000
Attention: Chief Financial Officer
with a copy (which shall not constitute notice pursuant to
this Section 8.2) to:
Hunton & Xxxxxxxx LLP
Riverfront Plaza, East Tower
000 X. Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Fax No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
SECTION 8.3. DEFINITIONS. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common
54
control with, such first person, where "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities, by
contract, as trustee or executor, or otherwise.
(b) a "Material Adverse Effect" means, when used in reference to
the Company or Parent, any change, effect, event, circumstance, occurrence or
state of facts that is or which reasonably would be expected to be materially
adverse to the business, assets, financial condition or results of operations of
such party and its subsidiaries, considered as an entirety.
(c) a "Material Revpar Change" shall be deemed to occur if a
decline in the Company's revenue per available room calculated in accordance
with the standards set forth in the Uniform Systems of Accounts For the Lodging
Industry, 9th Edition (1996) and GAAP ("revpar") was to decline in either of the
following manners: (x) if the amount of the Company's revpar for the thirty day
period immediately preceding the fifth day prior to the date of the Company
Shareholder Meeting has declined by 25% or more from the Company's revpar
generated during the same thirty day period during the Company's fiscal year
2002, or (y) if the amount of the Company's revpar for the sixty day period
immediately preceding the fifth day immediately prior to the date of the Company
Shareholder Meeting has declined by 17 1/2 % or more from the amount of the
Company's revpar generated for the same sixty day period during the Company's
fiscal year 2002.
(d) "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity.
(e) a "subsidiary" of any person means another person, an amount
of the voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect not less than a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person.
(f) "Knowledge" means, with respect to Parent or the Company, the
actual Knowledge of the Chairman of the Board, President, Chief Financial
Officer, Chief Accounting Officer, General Counsel of Parent, or Vice President
of Renovation and Design of the Company, as the case may be.
SECTION 8.4. INTERPRETATION. When a reference is made in this Agreement
to an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of
55
such term. Any agreement, instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to herein means, in the case of
any agreement or instrument, such agreement or instrument as from time to time
amended, modified or supplemented, including by waiver or consent and, in the
case of statutes, such statutes as in effect on the date of this Agreement.
References to a person are also to its permitted successors and assigns. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.
Any reference to any Federal, state, local or foreign statute or law shall be
deemed to also refer to any amendments thereto and all rules and regulations
promulgated thereunder, unless the context requires otherwise.
SECTION 8.5. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties. A facsimile copy of a
signature page shall be deemed to be an original signature page.
SECTION 8.6. ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement and, other than Sections
2.5, 5.11 and 5.13 are not intended to confer upon any person other than the
parties any rights or remedies. The parties agree that the individuals described
in Section 5.11 shall be deemed third party beneficiaries of the provisions of
such section and shall be entitled to enforce such provisions as if they were
original parties hereto.
SECTION 8.7. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal substantive and procedural laws of
the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law of such state.
SECTION 8.8. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9. CONSENT TO JURISDICTION. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any Federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
Federal court sitting in the State of
56
Delaware or a Delaware state court. The parties irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or any of the transactions contemplated by this
Agreement in any Federal court located in the State of Delaware or any Delaware
state court, and hereby further irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
SECTION 8.10. HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11. 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. 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 to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible provided
that, in no event shall there be any change in the amount or the kind of
consideration paid in the Mergers or the other payments contemplated by this
Agreement.
SECTION 8.12. ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which the parties are entitled at law or in equity.
[The remainder of this page is intentionally left blank.]
57
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CNL HOSPITALITY PROPERTIES, INC.
By:/s/ Xxxxxx X. Xxxxxxxxx, III
-----------------------------------
Name: Xxxxxx X. Xxxxxxxxx, III
Title: Chief Executive Officer
CNL ROSE ACQUISITION CORP.
By:/s/ Xxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxxx
Title: President
CNL ROSE ACQUISITION OP, LP
By: CNL Rose GP Corp., general partner
By:/s/ Xxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxxx
Title: President
RFS HOTEL INVESTORS, INC.
By:/s/ Xxxxxx Xxxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxxx
Title: Chairman and Chief Executive Officer
RFS PARTNERSHIP, L.P.
By: RFS Hotel Investors, Inc., general partner
By:/s/ Xxxxxx Xxxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxxx
Title: Chairman and Chief Executive Officer
58
EXHIBIT A
FORM OF
CERTIFICATE OF MERGER
OF
RFS HOTEL INVESTORS, INC.
WITH AND INTO
CNL ROSE ACQUISITION CORP.
---------------
Pursuant to Section 252 of the General
Corporation Law of the State of Delaware
----------------
CNL Rose Acquisition Corp., a Delaware corporation (the "Company"),
does hereby certify to the following facts relating to the merger of RFS Hotel
Investors, Inc., a Tennessee corporation ("RFS"), with and into the Company (the
"Merger"):
FIRST: The names and states of incorporation of the constituent
corporations to the Merger are as follows:
Name State
RFS Hotel Investors, Inc. Tennessee
CNL Rose Acquisition Corp. Delaware
SECOND: An Agreement, by and among CNL Hospitality Properties, Inc., a
Maryland corporation (the "Parent"), the Company, RFS, CNL Rose Acquisition OP,
LP, a Tennessee limited partnership, and RFS Partnership, L.P., a Tennessee
limited partnership, dated May 8, 2003 (the "Merger Agreement"), has been
approved, adopted, certified, executed and acknowledged by each of the Delaware
constituent corporations in accordance with Section 252(c) of the General
Corporation Law of the State of Delaware.
THIRD: The name of the corporation surviving the Merger (the "Surviving
Corporation") is CNL Rose Acquisition Corp.
FOURTH: The Certificate of Incorporation of the Surviving Corporation
shall be its Certificate of Incorporation.
FIFTH: An executed copy of the Merger Agreement is on file at the
offices of the Surviving Corporation, 000 Xxxxx Xxxxxx Xxxxxx, Xxxxxxx, Xxxxxxx.
A copy of the Merger Agreement will be furnished by the Surviving Corporation,
upon request and without cost, to any stockholder of either constituent
corporation.
SIXTH: The authorized capital stock of RFS consists of one hundred
thousand (100,000) shares of common stock, $0.01 par value per share, and five
thousand (5,000) shares of preferred stock, $0.01 par value per share.
59
SEVENTH: The Merger shall be effective for accounting and tax purposes
only as of _________, 2003 at 12:01 a.m.
IN WITNESS WHEREOF, CNL Rose Acquisition Corp. has caused this
Certificate of Merger to be executed in its corporate name this ___ day of
______, 2003.
CNL ROSE ACQUISITION CORP.
By: ____________________________________
Name: _________________________________
Its: ____________________________________
EXHIBIT B
FORM OF
ARTICLES OF MERGER
OF
RFS HOTEL INVESTORS, INC.
INTO
CNL ROSE ACQUISITION CORP.
Pursuant to the provisions of the Tennessee Business Corporation Act,
the undersigned corporations hereby execute the following Articles of Merger:
1. The Plan of Merger is attached hereto as Exhibit A and made a part hereof.
2. Approval by the shareholders of the corporation was required by Chapter 21
of the Tennessee Business Corporation Act and the plan of merger was approved by
the affirmative vote of the required percentage of all of the votes entitled to
be cast.
3. The Plan of Merger and performance of its terms were duly authorized by all
action required by the laws of the state under which CNL Rose Acquisition Corp.
was organized and its charter.
Date: ________ __, 2003 RFS HOTEL INVESTORS, INC.
By: ________________________________
Name:_______________________________
Its: _________________________________
Date: ________ __, 2003 CNL ROSE ACQUISITION CORP.
By: ___________________________________
Name: ________________________________
Its: __________________________________
61
EXHIBIT C
FORM OF
CERTIFICATE OF MERGER
OF
RFS PARTNERSHIP, L.P.
WITH AND INTO
CNL ROSE ACQUISITION OP, LP
Pursuant to Sec. 61-2-211 of the Tennessee Revised Uniform Limited
Partnership Act, the undersigned surviving limited partnership submits the
following Certificate of Merger for filing:
1. The name, jurisdiction and date of formation or organization of the
domestic limited partnerships which are to merge are:
Name Jurisdiction Date
---- ------------ ----
RFS Partnership, L.P. Tennessee _____________, ____
CNL Rose Acquisition OP, LP Tennessee _____________, ____
2. An Agreement of Merger has been approved and executed by RFS
Partnership, L.P. and CNL Rose Acquisition OP, LP which are to merge.
3. The name of the surviving limited partnership is: RFS Partnership, L.P.
4. The merger shall become effective on _____________, 2003.
5. The Agreement of Merger is on file at a place of business of RFS
Partnership, L.P. which is located at
--------------------------------------- .
6. A copy of the Agreement of Merger will be furnished by RFS Partnership,
L.P. on request and without cost, to any partner of RFS Partnership, L.P. or
CNL Rose Acquisition OP, LP.
Dated _________, ____
RFS PARTNERSHIP, L.P.
By: ________________________________
Name: _____________________________
Its: ________________________________
CNL ROSE ACQUISITION OP, LP
By: CNL Rose GP Corp., general partner
By: ________________________________
Name: _____________________________
Its: ________________________________
62
EXHIBIT D
FORM OF FLAGSTONE AGREEMENT
CNL HOSPITALITY PROPERTIES, INC.
000 XXXXX XXXXXX XXXXXX
XXXXXXX, XXXXXXX 00000-0000
PRIVATE AND CONFIDENTIAL
__________________, 2003
Flagstone Hospitality Management, LLC
____________________________________
____________________________________
Dear _____________:
Reference is made to (i) the Agreement by and among CNL Hospitality
Properties, Inc. ("CNL"), CNL Rose Acquisition Corp., RFS Hotel
Investors, Inc. ("RFS"), CNL Rose Acquisition OP, LP and RFS
Partnership, L.P. (the "Merger Agreement") pursuant to which, CNL will
acquire Rose by way of merger (the "Merger"); and (ii) those several
management agreements by and among Flagstone and the subsidiaries of
RFS substantially in the form of Exhibit A hereto (collectively, the
"Management Agreements"). This letter agreement (the "Agreement") is
being delivered pursuant to Section 6.2(h) of the Merger Agreement.
1. REPRESENTATIONS.
Flagstone represents and warrants to CNL on the date hereof and as of
the closing date of the Merger as follows:
(a) Flagstone is a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized and has the requisite limited liability company power and
requisite authority to carry on its business as presently being conducted.
Flagstone is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or licensing
necessary, except for those jurisdictions where the failure to be so qualified
or licensed or to be in good standing individually or in the aggregate would not
reasonably be expected to have a material adverse effect on Flagstone. Flagstone
has all requisite limited liability company power and authority to enter into
this Agreement.
(b) Flagstone is and has been, in compliance in all material
respects with all applicable statutes, laws, regulations, ordinances, permits,
rules, writs, judgments, orders,
63
decrees or arbitration awards of any governmental entity applicable to Flagstone
(collectively, "Permits"). Flagstone is in compliance in all material respects
with the terms of all Permits and all Permits are in full force and effect and
no suspension, modification or revocation of any of them is pending or, to the
knowledge of Flagstone, threatened nor, to the knowledge of Flagstone, do
grounds exist for any such action. For purposes of this letter agreement,
"knowledge" means the knowledge (after reasonable inquiry and investigation) of
Flagstone's current Chief Administrative Officer.
(c) The balance sheet, income statement and statement of cash
flows of Flagstone for the twelve and three month periods ended December 31,
2002 and March 31, 2003, respectively, in the form attached hereto was prepared
in accordance with the Uniform Systems of Accounts for the Lodging Industry, 9th
Edition (1996).
(d) Except as set forth in the Company Disclosure Schedules to the
Merger Agreement and as would not have a material adverse effect on Flagstone:
(i) No event has occurred, and to the knowledge of Flagstone,
there exists no condition or set of circumstances (including without limitation
the transactions contemplated by the Merger Agreement) in connection with which
Flagstone could be subject to any liability with respect to any Benefit Plan
(except for benefit claims and funding obligations payable in the ordinary
course) under the Employee Retirement Income Security Act of 1974, as amended,
the Internal Revenue Code of 1986, as amended (the "Code") or any other
applicable law. There are no funded benefit obligations under any of the Benefit
Plans for which contributions have not been made or accrued and there are no
unfunded benefit obligations under any Benefit Plans which have not been
accounted for by reserves, or otherwise properly footnoted, in accordance with
generally accepted accounting procedures, on Flagstone's financial statements.
Neither RFS nor any subsidiary or affiliate of RFS has any direct or indirect,
actual or contingent liability with respect to any of the Benefit Plans, whether
pursuant to the Management Agreements or otherwise.
(ii) For purposes of clause (i) of this Section 1(d), the
term "Benefit Plan" means any pension, stock option, stock purchase, benefit,
welfare, profit sharing, retirement, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation or other similar
fringe benefit plan, fund, program, arrangement, whether written or oral, that
is maintained for the benefit of, or relates to any or all current or former
employees of Flagstone or any entity related to Flagstone under Section 414(b),
(c), (m) or (o) of the Code.
(e) Except as set forth in the Company Disclosure Schedules to the
Merger Agreement and as would not have a material adverse effect on Flagstone:
(i) Flagstone is not a party to any collective bargaining
agreement or other current labor agreement with any labor union or organization,
and, to Flagstone's knowledge, there is no question involving current union
representation of its employees, nor to Flagstone's knowledge is any activity or
proceeding of any labor organization (or representative thereof) or employee
group (or representative thereof) underway to organize any such employees.
64
(ii) There is no unfair labor practice charge or grievance
arising out of a collective bargaining agreement or other grievance procedure
pending, or, to Flagstone's knowledge, threatened against Flagstone.
(iii) There is no complaint, lawsuit or proceeding in any
forum by or on behalf of any present or former employee, any applicant for
employment or any class of the foregoing, alleging breach of any express or
implied contract of employment, any law or regulation governing employment or
the termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship pending, or, to Flagstone's
knowledge, threatened against Flagstone.
(iv) There is no strike, slowdown, work stoppage or lockout
pending, or to Flagstone's knowledge, threatened against or involving Flagstone.
(v) Flagstone is in material compliance with all applicable
laws in respect of employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health.
(vi) There is no proceeding, claim, suit, action or
governmental investigation pending, or to Flagstone's knowledge, threatened with
respect to which any current or former officer, director, employee or agent of
Flagstone is claiming indemnification from Flagstone.
(vii) No employment agreement or other agreement or
arrangement exists that requires any severance payment, change in control
payment or other post-employment liability or obligation with respect to any
current or former officer, director, employee or agent of Flagstone.
(f) Except as set forth in the Company Disclosure Schedules to the
Merger Agreement, there is no material pending or threatened litigation, action,
suit, proceeding, investigation or arbitration with respect to Flagstone.
(g) No event of default (whether with respect to RFS or Flagstone)
exists under any Management Agreement and except as otherwise may arise in the
ordinary course of business, consistent with past practice, no amount is due and
owing by RFS to Flagstone thereunder. To Flagstone's knowledge, no event exists
which, with the giving of notice, the passage of time, or both, would result in
Rose being in default under any Management Agreement. Each Management Agreement
is in full force and effect and, assuming the due enforceability as to RFS, is
duly enforceable in accordance with its terms.
2. COVENANTS.
(a) Immediately following consummation of the transactions
contemplated by the Merger Agreement:
(i) the fee arrangement pursuant to the Management Agreements
will be substantially in accordance with the description on
Exhibit B hereto, retroactive to January 1, 2003; and
65
(ii) the Operating Agreement of Flagstone will be amended
substantially in accordance with Exhibit C hereto.
(b) From the date hereof through the Effective Time (as defined in
the Merger Agreement) Flagstone will promptly advise CNL orally and in writing
to the extent it has knowledge of any representation or warranty made by it
contained in this letter becoming untrue or inaccurate.
(c) Flagstone will afford CNL and its officers, counsel, financial
advisors and lenders, reasonable access during normal business hours during the
period from the date hereof through the Effective Time (as defined in the Merger
Agreement), to its books, contracts, commitments, personnel and records and all
other information relating to the hotel properties that are the subject of the
Management Agreement, as CNL may reasonably request.
(d) In connection with the above, CNL will hold, and will cause
its consultants and advisors to hold, in strict confidence, all documents and
information concerning Flagstone furnished to CNL in connection with this
letter; provided, however, that CNL may disclose such document or information:
(i) that is already public knowledge prior to such disclosure or (ii) to the
extent that, in the reasonable opinion of CNL's legal counsel, such disclosure
is required by law but only after CNL has given prior written notice of the
disclosure to Flagstone, to the extent reasonably possible.
3. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations and warranties in this Agreement shall
survive the Effective Time (as defined in the Merger Agreement).
4. MISCELLANEOUS.
It is the intent of the parties that the provisions contained in
this letter agreement will be governed by and construed in accordance with, the
internal substantive and procedural laws of the State of Delaware, without
regard to such State's conflicts of law principles, and each of CNL and
Flagstone consent to submit itself to the personal jurisdiction of any Federal
or state court located in Delaware.
66
If the foregoing is acceptable, kindly confirm your acceptance of
the terms hereof by executing the duplicate original contained herein, and
returning same to our attention.
CNL HOSPITALITY PROPERTIES, INC.
By: ______________________
Name: ___________________
Title: ____________________
ACCEPTED AND AGREED TO:
FLAGSTONE HOSPITALITY MANAGEMENT LLC
By: ______________________
Name: ___________________
Title: ____________________
67