AGREEMENT AND PLAN OF MERGER

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

Among

HIGHLAND HOSPITALITY CORPORATION,

HIGHLAND HOSPITALITY, L.P.,

BLACKJACK HOLDINGS, LLC,

BLACKJACK MERGER CORPORATION

and

BLACKJACK MERGER PARTNERSHIP, LP

Dated as of April 24, 2007

TABLE OF CONTENTS

 

 

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Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of April 24, 2007 (this “ Agreement ”), is made and entered into by and among Highland Hospitality Corporation, a Maryland corporation (the “ Company ”), Highland Hospitality, L.P., a Delaware limited partnership (the “ Operating Partnership ”), Blackjack Holdings, LLC, a Delaware limited liability company (“ Parent ”), Blackjack Merger Corporation, a Maryland corporation and wholly owned subsidiary of Parent (“ MergerCo ”), and Blackjack Merger Partnership, LP, a Delaware limited partnership and a wholly owned subsidiary of MergerCo (“ Merger Partnership ”, and together with Parent and MergerCo, the “ Buyer Parties ”).

WHEREAS, the parties wish to effect a business combination through a merger of the Company with and into MergerCo (the “ Company Merger ”) on the terms and subject to the conditions set forth in this Agreement and in accordance with the Maryland General Corporation Law (the “ MGCL ”);

WHEREAS, the parties also wish to effect a merger of Merger Partnership with and into the Operating Partnership (the “ Partnership Merger ” and, together with the Company Merger, the “ Mergers ”), on the terms and subject to the conditions set forth in this Agreement and in accordance with Section 17-211 of the Delaware Revised Uniform Limited Partnership Act, as amended (“ DRULPA ”);

WHEREAS, the Board of Directors of the Company (the “ Company Board ”) has approved this Agreement, the Company Merger and the other transactions contemplated by this Agreement and declared that the Company Merger and the other transactions contemplated by this Agreement are advisable and in the best interests of the Company and its stockholders on the terms and subject to the conditions set forth herein and has directed that the Company Merger be submitted for consideration by its stockholders;

WHEREAS, HHC GP Corporation, a wholly owned subsidiary of the Company and the sole general partner of the Operating Partnership (the “ GP ”), has approved this Agreement and the Partnership Merger and deemed it advisable and in the best interests of the limited partners of the Operating Partnership for the Operating Partnership to enter into this Agreement and to consummate the Partnership Merger on the terms and conditions set forth in herein;

WHEREAS, the Board of Directors of MergerCo has approved this Agreement and the Company Merger and declared that this Agreement and the Company Merger are advisable on the terms and subject to the conditions set forth herein;

WHEREAS, MergerCo, as the general partner of Merger Partnership, has approved this Agreement and the Partnership Merger and declared that this Agreement and the Partnership Merger are advisable on the terms and subject to the conditions set forth herein;

WHEREAS, the parties intend that for federal, and applicable state, income tax purposes the Company Merger and the Partnership Merger be undertaken pursuant to a single integrated plan with the result that such mergers be treated as a taxable sale by the Company of all of the Company’s assets to MergerCo in exchange for the merger consideration provided for

herein and the assumption of all of the Company’s liabilities, followed by a distribution of such merger consideration to the stockholders of the Company in liquidation pursuant to Section 331 and Section 562 of the Internal Revenue Code of 1986, as amended (the “ Code ”), and corresponding provisions of state and local law, and that this Agreement shall constitute a “plan of liquidation” of the Company for federal income tax purposes; and

WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Mergers, and also to prescribe various conditions to such transactions.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01 Definitions . For purposes of this Agreement:

“ Acquisition Proposal ” means any proposal or offer for, whether in one transaction or a series of related transactions, any (a) merger, consolidation or similar transaction involving the Company, the GP, the Operating Partnership or any Subsidiary that would constitute a “significant subsidiary” (as defined in Rule 1-02 of Regulation S-X, but substituting 20% for references to 10% therein), (b) sale or other disposition, directly or indirectly, by merger, consolidation, share exchange or any similar transaction, of any assets of the Company or the Subsidiaries representing 20% or more of the consolidated assets of the Company and the Subsidiaries, (c) issuance, sale or other disposition by the Company, the GP or the Operating Partnership, as applicable, of (including by way of merger, consolidation, share exchange or any similar transaction) securities (or options, rights or warrants to purchase, or securities convertible into, such securities) representing 20% or more of the votes associated with the outstanding voting equity securities of the Company, the GP or the Operating Partnership, as applicable, (d) tender offer or exchange offer in which any Person or “group” (as such term is defined under the Exchange Act) shall acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or the right to acquire beneficial ownership, of 20% or more of the outstanding Company Common Shares or outstanding equity interests of the GP or the Operating Partnership, (e) recapitalization, restructuring, liquidation, dissolution or other similar type of transaction with respect to the Company or the Operating Partnership, or (f) transaction which is similar in form, substance or purpose to any of the foregoing transactions; provided , however , that the term “Acquisition Proposal” shall not include the Mergers or any of the other transactions contemplated by this Agreement.

“ Action ” means any claim, action, suit, proceeding, arbitration, mediation or other investigation as to which written notice has been provided to the applicable party.

“ Affiliate ” or “affiliate” of a specified person means a person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person.

 

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“ beneficial owner ”, with respect to any Company Common Shares, has the meaning ascribed to such term under Rule 13d-3(a) of the Exchange Act.

“ Business Day ” or “ business day ” means any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day (other than a Saturday or Sunday) on which banks are not required or authorized to close in the City of New York.

“ Certificate ” or “ Certificates ” means any certificate evidencing Company Common Shares, Company Series A Preferred Shares or OP Units.

“ Company Bylaws ” means the Amended and Restated By-Laws of the Company, as amended.

“ Company Charter ” means the Articles of Amendment and Restatement of the Company, as amended and supplemented through the date hereof.

“ Company Common Shares ” means shares of common stock, par value $0.01 per share, of the Company.

“ Company Leases ” means all leases, licenses, subleases, concessions or similar agreements for the use or occupancy by a Third Party of more than 10,000 square feet of any of the Company Properties.

“ Company Material Adverse Effect ” means, with respect to the Company, an effect, event, development, occurrence or change that is materially adverse to the assets, liabilities, business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole, other than any effect, event, development, occurrence or change arising out of or resulting from (a) decrease in the market price of the Company Common Shares (but not any effect, event, development, occurrence or change underlying such decrease to the extent that such effect, event, development or change would otherwise constitute a Company Material Adverse Effect), (b) changes in conditions in the U.S. or global economy or capital or financial markets generally, including changes in interest or exchange rates, (c) changes in general legal, tax, regulatory, political or business conditions that, in each case, generally affect the geographic regions or industries in which the Company and its Subsidiaries conduct their business (except to the extent such effect, event, development, occurrence or change affects the Company and its Subsidiaries in a materially disproportionate manner as compared to other persons or participants in the industries in which the Company and its Subsidiaries conduct their business and that operate in the geographic regions affected by such effect, event, development or change), (d) changes in GAAP, (e) the negotiation, execution, announcement or performance of this Agreement or the transactions contemplated hereby or the consummation of the transactions contemplated by this Agreement, including the impact thereof on relationships, contractual or otherwise, with tenants, suppliers, lenders, investors, venture partners or employees, (f) acts of war, armed hostilities, sabotage or terrorism, or any escalation or worsening of any such acts of war, armed hostilities, sabotage or terrorism threatened or underway as of the date of this Agreement (except to the extent such effect, event, development, occurrence or change affects the Company and its Subsidiaries in a materially disproportionate

 

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manner as compared to other persons or participants in the industries in which the Company and its Subsidiaries conduct their business and that operate in the geographic regions affected by such effect, event, development, occurrence or change), (g) earthquakes, hurricanes or other natural disasters (except to the extent such effect, event, development, occurrence or change affects the Company and its Subsidiaries, in a materially disproportionate manner as compared to other persons or participants in the industries in which the Company and its Subsidiaries conduct their business and that operate in the geographic regions affected by such effect, event, development, occurrence or change ), or (h) any action taken by the Company or its Subsidiaries at the request or with the prior written consent of any of the Buyer Parties.

“ control ” (including the terms “ controlled by ” and “ under common control with ”) means the possession, directly or indirectly of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise;

“ Disclosure Schedule ” means the disclosure schedule delivered by the Company to Parent concurrently with the execution of this Agreement for which the disclosure of any fact or item in any Section of such disclosure schedule shall, should the existence of such fact or item be relevant to any other section, be deemed to be disclosed with respect to that other Section so long as the relevance of such disclosure to such other Section is reasonably apparent from the nature of such disclosure. Nothing in the Disclosure Schedule is intended to broaden the scope of any representation or warranty of the Company or the Operating Partnership made herein.

“ Effective Time ” means the later to occur of the Company Merger Effective Time and the Partnership Merger Effective Time.

“ Environmental Laws ” means any applicable United States federal, state or local law in existence on or before the date hereof relating to (i) Releases or threatened Releases of Hazardous Substances; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances; or (iii) pollution or protection of the environment, health, safety or natural resources.

“ GAAP ” means generally accepted accounting principles as applied in the United States.

“ Governmental Authority ” means any United States federal, state, provincial, municipal or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body.

“ Hazardous Substances ” means (i) those substances defined in or regulated under the following United States federal statutes and their state counterparts, as each has been amended from time to time, and all regulations thereunder in effect prior to the date hereof, including the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) polychlorinated biphenyls, asbestos, lead and radon; and (iv) any other contaminant, substance, material or waste regulated by any Governmental Authority pursuant to any Environmental Law.

 

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“ Intellectual Property ” means (i) United States and international patents, patent applications and invention registrations of any type, (ii) trademarks, service marks, trade dress, logos, trade names, corporate names and other source identifiers, and registrations and applications for registration thereof, (iii) copyrightable works, copyrights, and registrations and applications for registration thereof, and (iv) confidential and proprietary information, including trade secrets and know-how.

“ knowledge of the Company ” means the actual knowledge of those individuals listed on Exhibit A .

“ knowledge of Parent ” means the actual knowledge of those individuals listed on Exhibit B .

“ Law ” means any United States national, state, provincial, municipal or local statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, writ, decree or other order.

“ Liens ” means with respect to any asset (including any security), any mortgage, claim, lien, pledge, charge, security interest or encumbrance of any kind in respect to such asset.

“ Merger Consideration ” means, collectively, the Common Share Merger Consideration, the Warrant Merger Consideration, the Series A Preferred Merger Consideration and the OP Unit Merger Consideration.

“ Operating Partnership Agreement ” means that certain Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated December 19, 2003, as amended.

“ Parent Material Adverse Effect ” means any effect, event, development, occurrence or change that would reasonably be expected to prevent, or materially delay Parent, MergerCo or Merger Partnership from consummating the Company Merger or the Partnership Merger.

“ Permitted Liens ” means (i) Liens for Taxes not yet delinquent and Liens for Taxes being contested in good faith and for which there are adequate reserves on the financial statements of the Company; (ii) inchoate mechanics’ and materialmen’s Liens for construction in progress; (iii) inchoate workmen’s, repairmen’s, warehousemen’s and carriers’ Liens arising in the ordinary course of business of the Company or any Subsidiary; (iv) zoning restrictions, survey exceptions, utility easements, rights of way and similar Liens that are imposed by any Governmental Authority having jurisdiction thereon or otherwise are typical for the applicable property type and locality; (v) with respect to real property, any title exception disclosed in any title insurance policy provided or made available to Parent (whether material or immaterial), Liens and obligations arising under the Material Contracts (including but not limited to any Lien securing mortgage debt disclosed in the Disclosure Schedule), the Franchise Agreements, the Management Agreement Documents, the Ground Leases and any other Lien that does not

 

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interfere materially with the current use of such property (assuming its continued use in the manner in which it is currently used) or materially adversely affect the value or marketability of such property; and (vi) matters that would be disclosed on current title reports or surveys that arise or have arisen in the ordinary course of business that does not interfere materially with the current use of such property (assuming its continued use in the manner in which it is currently used) or materially adversely affect the value or marketability of such property.

“ person ” or “ Person ” means an individual, corporation, partnership, limited partnership, limited liability company, syndicate, person (including a “person” as defined in Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political subdivision, agency or instrumentality of a government.

“ Release ” means any release, spill, emission, discharge, leaking, pumping, pouring, dumping, injection, disposal, leaching or migration of Hazardous Substances into the environment (including ambient air, surface water, ground water, and surface or subsurface strata).

“ Series A Preferred OP Units ” means the series of partnership units representing units of limited partnership interest designated as the 7.875% Series A Cumulative Redeemable Preferred Units (Liquidation Preference $25 per share), with the preferences, liquidation and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of units as described in the Operating Partnership Agreement.

“ subsidiary ” or “ subsidiaries ” of the Company, Parent or any other person means a corporation, limited liability company, partnership, joint venture or other organization of which: (a) such party or any other subsidiary of such party is a general partner; (b) voting power to elect a majority of the board of directors or others performing similar functions with respect to such organization is held by such party or by any one or more of such party’s subsidiaries; or (c) at least 50% of the equity interests is controlled by such party.

“ Superior Proposal ” means a written Acquisition Proposal (on its most recently amended and modified terms, if amended and modified) made by a Third Party which the Company Board determines in its good faith judgment (after consultation with its financial advisor and outside legal counsel and after taking into account all of the terms and conditions of the Acquisition Proposal, including the conditions to the consummation of the Acquisition Proposal and the legal, regulatory and financing terms and aspects of such Acquisition Proposal, and after taking into account any amendment to this Agreement entered into or to which Parent irrevocably commits to enter into and for which all internal approvals of Parent have been obtained) to be more favorable to the Company’s stockholders than the Company Merger from a financial point of view. For the purposes of this definition, the term “Acquisition Proposal” shall have the meaning set forth in the above definition of Acquisition Proposal, except that all references to “20%” shall be deemed references to “50%”.

“ Taxes ” means (i) any and all taxes, charges, fees, levies and other assessments, including income, gross receipts, excise, property, sales, withholding (including dividend withholding and withholding required pursuant to Sections 1445 and 1446 of the Code), social security, occupation, use, service, license, payroll, franchise, transfer and recording taxes, fees

 

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and charges, including estimated taxes, imposed by the United States or any taxing authority (domestic or foreign), whether computed on a separate, consolidated, unitary, combined or any other basis, and similar charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any government or taxing authority, and (ii) any obligation with respect to the items described in (i) above by reason of Treasury Regulation Section 1.1502-6 (or any analogous provision of state, local or foreign Tax law).

(a) the following terms have the meaning set forth in the Sections set forth below:

 

 

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SECTION 1.02 Interpretation and Rules of Construction .

In this Agreement, except to the extent otherwise provided or that the context otherwise requires:

(a) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;

(b) the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;

(c) whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”;

(d) the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;

(e) references to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any Section of any statute, rule or regulation include any successor to the section;

 

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(f) all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;

(g) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;

(h) references to a person are also to its successors and permitted assigns; and

(i) the use of “or” is not intended to be exclusive unless expressly indicated otherwise.

ARTICLE II

THE MERGERS

SECTION 2.01 Mergers .

(a) Subject to the terms and conditions of this Agreement, and in accordance with the MGCL, at the Company Merger Effective Time, MergerCo and the Company shall consummate the Company Merger pursuant to which (i) the Company shall be merged with and into MergerCo and the separate existence of the Company shall thereupon cease and (ii) MergerCo shall be the surviving corporation in the Company Merger (the “ Surviving Corporation ”). The Company Merger shall have the effects specified in Section 3-114 of the MGCL. Notwithstanding the foregoing, Parent may, (i) so long as the Company does not determine that such action may result in the holders of Company Series A Preferred Shares becoming entitled to vote on the Company Merger, elect at any time prior to the date that is fifteen (15) days after the date hereof to substitute any direct or indirect subsidiary (which may be a corporation, limited liability company, real estate investment trust or other entity) of Parent for MergerCo as a constituent entity in the Company Merger and/or (ii) interpose a newly formed corporation, limited liability company, real estate investment trust or other entity (a “ New Entity ”) between Parent and MergerCo such that such New Entity is wholly owned directly or indirectly by Parent and such New Entity directly or indirectly owns MergerCo. In such event, the parties shall execute an appropriate amendment to this Agreement in order to reflect the foregoing.

(b) Subject to the terms and conditions of this Agreement, and in accordance with Section 17-211 of the DRULPA, immediately following the Company Merger Effective Time, on the same day thereof and as part of a single overall transaction with the Company Merger and pursuant to an integrated plan, Merger Partnership and the Operating Partnership shall consummate the Partnership Merger pursuant to which (i) Merger Partnership shall be merged with and into the Operating Partnership and the separate existence of Merger Partnership shall thereupon cease and (ii) the Operating Partnership shall be the surviving partnership in the Partnership Merger (the “ Surviving Partnership ”). The Partnership Merger shall have the effects specified in Section 17-211(h) of the DRULPA.

 

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SECTION 2.02 Articles of Incorporation and Bylaws; Partnership Agreement .

(a) The charter of MergerCo, as amended, as in effect immediately prior to the Company Merger Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended as provided therein or by law (the “ Articles of Incorporation ”).

(b) The bylaws of MergerCo, as in effect immediately prior to the Company Merger Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended as provided by law, by the charter or by such bylaws (the “ Bylaws ”).

(c) The limited partnership agreement of the Operating Partnership, as in effect immediately prior to the Partnership Merger Effective Time, shall be the limited partnership agreement of the Surviving Partnership until thereafter amended as provided therein or by law. The certificate of limited partnership of the Operating Partnership, as in effect immediately prior to the Partnership Merger Effective Time, shall be the certificate of limited partnership of the Surviving Partnership until thereafter amended as provided therein or by law.

SECTION 2.03 Effective Time .

(a) At the Closing, MergerCo and the Company shall duly execute and file articles of merger in a form that complies with the MGCL (the “ Articles of Merger ”) with the State Department of Assessments and Taxation of the State of Maryland (the “ SDAT ”) in accordance with the MGCL. The Company Merger shall become effective upon such time as the Articles of Merger have been accepted for record by the SDAT, or such later time which the parties hereto shall have agreed upon and designated in such filing in accordance with the MGCL as the effective time of the Company Merger but not to exceed thirty (30) days after the Articles of Merger are accepted for record by the SDAT (the “ Company Merger Effective Time ”).

(b) At the Closing, immediately after the Company Merger Effective Time, and on the same day thereof, the Operating Partnership and Merger Partnership shall file a certificate of merger in a form that complies with the DRULPA (the “ Partnership Merger Certificate ”) with the Secretary of State of the State of Delaware (the “ DSOS ”), executed in accordance with the applicable provisions of the DRULPA and shall make all other filings or recordings required under the DRULPA to effect the Partnership Merger. The Partnership Merger shall become effective after the Company Merger Effective Time upon such time as the Partnership Merger Certificate has been accepted by the DSOS, or such later time which the parties hereto shall have agreed upon and designated in such filing in accordance with the DRULPA as the effective time of the Partnership Merger (the “ Partnership Merger Effective Time ”).

SECTION 2.04 Closing . The closing of the Mergers (the “ Closing ”) shall occur as promptly as practicable (but in no event later than the second (2nd) Business Day) after all of the conditions set forth in Article VIII (other than conditions which by their terms are required to be satisfied or waived at the Closing) shall have been satisfied or waived by the party entitled to the benefit of the same, and, subject to the foregoing, shall take place at such time and on a date to be specified by the parties (the “ Closing Date ”). The Closing shall take place at the offices of Hogan & Hartson L.L.P., 555 13th Street, N.W., Washington, D.C., or at such other place as agreed to by the parties hereto.

 

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SECTION 2.05 Directors and Officers of the Surviving Corporation . The directors of MergerCo immediately prior to the Company Merger Effective Time shall be the directors of the Surviving Corporation and the officers of MergerCo immediately prior to the Company Merger Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation.

SECTION 2.06 Partnership Matters . The general partner of the Surviving Partnership immediately after the Partnership Merger Effective Time shall be the GP. The officers of the Merger Partnership immediately prior to the Partnership Merger Effective Time shall be the initial officers of the Surviving Partnership, each to hold office in accordance with the Operating Partnership Agreement.

SECTION 2.07 Dissolution and Liquidation of the Surviving Corporation . As promptly as practicable following the date hereof, and in any event no later than thirty (30) days prior to the Company Merger Effective Time, the Surviving Corporation shall deliver written notice of its election to liquidate and terminate its existence as of immediately following the Company Merger Effective Time to the holders of the MergerCo Series A Preferred Shares, stating the date and place of payment of the amount distributable to such holders of the MergerCo Series A Preferred Shares in accordance with the terms of the Articles of Incorporation relating to the MergerCo Series A Preferred Shares, which notice will be delivered prior to the payment date stated in the notice (the “ Liquidation Payment Date ”) in accordance with the terms of the Articles of Incorporation relating to the MergerCo Series A Preferred Shares. On the Liquidation Payment Date, the holders of the MergerCo Series A Preferred Shares will receive distributions from the Surviving Corporation equal to the amounts payable to them upon a liquidation of the Surviving Corporation in accordance with the terms of the Articles of Incorporation relating to the MergerCo Series A Preferred Shares. The Surviving Corporation will undertake dissolution in accordance with the provisions of Subtitle 4 of Title 3 of the MGCL and will file articles of dissolution with the SDAT.

SECTION 2.08 Other Transactions . Parent shall have the option, in its sole discretion and without requiring the further consent of any of the Company, the Operating Partnership, or the Company Board, the GP, shareholders or partners of the Company or the Operating Partnership, upon reasonable notice to the Company, to request that the Company, immediately prior to the Closing, (a) convert or cause the conversion of one or more wholly-owned Company Subsidiaries that are organized as corporations (including, but not limited to, GP) into limited liability companies and one or more Company Subsidiaries that are organized as limited partnerships into limited liability companies, on the basis of organizational documents as reasonably requested by Parent, (b) sell or cause to be sold all of the stock, partnership interests or limited liability company interests owned, directly or indirectly, by the Company in one or more Subsidiaries at a price designated by Parent, and (c) sell or cause to be sold any of the assets of the Company or one or more Subsidiaries at a price designated by Parent; provided , however , that (i) none of the Company or any Subsidiary shall be required to take any action in contravention of any provision of (A) the Company Charter, the Company Bylaws, the Operating Partnership Agreement or the comparable charter or organizational documents of any Subsidiary

 

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or (B) any Permit, Material Contract, Franchise Agreement, Management Agreement Document, Ground Lease or Plan, (ii) any such actions or transactions shall be contingent upon all of the conditions set forth in Article VIII having been satisfied (or, with respect to Section 8.02(e) , waived) and receipt by the Company of a written notice from Parent to such effect and that the Buyer Parties are prepared to proceed immediately with the Closing and any other evidence reasonably requested by the Company that the Closing will occur (it being understood that in any event the transactions described in clauses (a), (b) and (c) will be deemed to have occurred prior to the Closing), (iii) such actions (or the inability to complete such actions) shall not affect or modify in any respect the obligations of the Buyer Parties under this Agreement, including payment of the Merger Consideration, and (iv) neither the Company nor any of its Subsidiaries shall be required to take any such action at any time prior to the Effective Time that could adversely affect the classification of the Company as a REIT or could subject the Company to any “prohibited transactions” taxes or other material Taxes under Code Sections 857(b), 860(c) or 4981. Parent shall, upon request by the Company, advance to the Company all reasonable out-of-pocket costs to be incurred by the Company or, promptly upon request by the Company, reimburse the Company for all reasonable out-of-pocket costs incurred by the Company in connection with any actions taken by the Company in accordance with this Section 2.08 (including reasonable fees and expenses of its Representatives). Parent shall indemnify and hold harmless the Company, the Subsidiaries and their Representatives from and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred by them in connection with or as a result of taking such actions. Without limiting the foregoing, none of the representations, warranties or covenants of the Company or the Operating Partnership shall be deemed to apply to, or deemed breached or violated by, any of the transactions contemplated by this Section 2.08 or required by Parent pursuant to this Section 2.08 .

ARTICLE III

EFFECTS OF THE MERGERS

SECTION 3.01 Effects on Shares . As of the Company Merger Effective Time, by virtue of the Company Merger and without any action on the part of the holder of Company Common Shares or holders of any shares in MergerCo:

(a) Each share of common stock, par value $0.01 per share, of MergerCo issued and outstanding immediately prior to the Company Merger Effective Time shall remain as one issued and outstanding share of common stock of the Surviving Corporation.

(b) Each Company Common Share that is owned by any Subsidiary or by MergerCo shall, immediately prior to the Company Merger Effective Time, automatically be canceled and retired and shall cease to exist, and no payment shall be made with respect thereto.

(c) Each Company Common Share issued and outstanding immediately prior to the Company Merger Effective Time (other than shares to be canceled in accordance with Section 3.01(b) ) shall automatically be converted into, and canceled in exchange for, the right to receive an amount in cash to be paid by Parent equal to $19.50 (the “ Company Common Share Merger Consideration ”).

 

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(d) Each Company Series A Preferred Share issued and outstanding immediately prior to the Company Merger Effective Time (other than the Company Series A Shares owned by any Subsidiary or by MergerCo, which shall be automatically cancelled and retired and cease to exist) shall automatically be converted into, and shall be cancelled in exchange for, the right to receive one share of 7.8750% Series A Preferred Stock, par value $0.01 per share (the “ MergerCo Series A Preferred Shares ”), of the Surviving Corporation (the “ Company Series A Preferred Share Merger Consideration ”). The MergerCo Series A Preferred Shares shall have terms that are materially the same as the terms of the Company Series A Preferred Shares outstanding on the date hereof, except that MergerCo rather than the Company will be the issuer of the shares. At the Company Merger Effective Time, MergerCo’s Articles of Incorporation will be amended or supplemented to include terms that are materially the same as the Company Series A Preferred Shares.

(e) At the Company Merger Effective Time, each warrant to purchase Company Common Shares listed in Section 4.03(b) of the Disclosure Schedule (the “ Company Warrants ”) not theretofore exercised shall be canceled in exchange for the right to receive a single lump sum cash payment, equal to the product of (i) the number of Company Common Shares subject to such Company Warrant immediately prior to the Company Merger Effective Time, whether or not exercisable, and (ii) the excess, if any, of the Company Common Share Merger Consideration over the exercise price per share of such Company Warrant (the “ Warrant Merger Consideration ”). If the exercise price per share of any such Company Warrant is equal to or greater than the Company Common Share Merger Consideration, such Company Warrant shall be canceled without any cash payment being made in respect thereof.

(f) The Buyer Parties acknowledge that, to the extent not previously vested, all outstanding restricted share awards (“ Company Restricted Shares ”) granted pursuant to the Company’s Amended and Restated 2003 Omnibus Stock Incentive Plan, as amended (the “ Incentive Plan ”), automatically shall become fully vested and free of any forfeiture restrictions immediately prior to the Company Merger Effective Time. Each such Company Restricted Share shall be considered an outstanding Company Common Share for all purposes of this Agreement, including the right to receive the Company Common Share Merger Consideration. The amount of previously accrued and unpaid dividends on the Company Restricted Shares also shall become fully vested immediately prior to the Company Merger Effective Time and shall be paid by the Surviving Corporation immediately following the Company Merger Effective Time.

SECTION 3.02 Effect on Operating Partnership Units .

(a) At the Partnership Merger Effective Time, by virtue of the Partnership Merger and without any action on the part of the holder of any partnership interest of the Operating Partnership, each unit of limited partner interest in the Operating Partnership issued and outstanding immediately prior to the Partnership Merger Effective Time (“ OP Units ”) (other than any OP Units or Series A Preferred OP Units held by the Company or any of its Subsidiaries, which OP Units and Series A Preferred OP Units shall remain outstanding and unchanged as units of limited partnership interest in the Surviving Partnership), subject to the terms and conditions set forth herein, shall be converted into, and cancelled in exchange for, the right to receive cash in an amount equal to the Company Common Share Merger Consideration per OP Unit on an as-converted basis (the “ OP Unit Merger Consideration ”).

 

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(b) The general partner interests of the Operating Partnership shall remain outstanding as general partner interests in the Surviving Partnership, entitling the holder thereof to such rights, duties and obligations as are more fully set forth in the partnership agreement of the Surviving Partnership.

(c) Each limited and general partnership interest in Merger Partnership shall automatically be cancelled and cease to exist, the holders thereof shall cease to have any rights with respect thereto and no payment shall be made with respect thereto.

SECTION 3.03 Exchange of Certificates; Paying Agent .

(a) Paying Agent . Prior to the Company Merger Effective Time, Parent shall appoint a bank or trust company reasonably satisfactory to the Company to act as Exchange and Paying Agent (the “ Paying Agent ”) for the payment or exchange, as applicable, in accordance with this Article III of the Merger Consideration (collectively, such cash being referred to as the “ Exchange Fund ”). On or before the Company Merger Effective Time, Parent shall deposit with the Paying Agent the Merger Consideration for the benefit of the holders of Company Common Shares, the Company Series A Preferred Shares, the Company Warrants, and the OP Units. The Parent shall cause the Paying Agent to make, and the Paying Agent shall make, payments of the Merger Consideration out of the Exchange Fund in accordance with this Agreement, the Articles of Merger and the Partnership Merger Certificate. The Exchange Fund shall not be used for any other purpose. Any and all interest earned on cash deposited in the Exchange Fund shall be paid to the Surviving Corporation.

(b) Share Transfer Books . At the Company Merger Effective Time, the share or unit transfer books of the Company and the Operating Partnership, as applicable, shall be closed and thereafter there shall be no further registration of transfers of the Company Common Shares, Company Restricted Shares, the Company Warrants, the Company Series A Preferred Shares or the OP Units. From and after the Company Merger Effective Time, persons who held Company Common Shares, Company Restricted Shares, Company Warrants, Company Series A Preferred Shares, or OP Units immediately prior to the Company Merger Effective Time shall cease to have rights with respect to such shares, warrants or units, except as otherwise provided for herein. On or after the Company Merger Effective Time, any Certificates of the Company or the Operating Partnership, as applicable, presented to the Paying Agent, the Surviving Corporation or the transfer agent for any reason shall be exchanged for the applicable Merger Consideration.

(c) Exchange Procedures for Certificates . (i) Promptly after the Company Merger Effective Time (but in any event within five (5) Business Days), the Surviving Corporation shall cause the Paying Agent to mail to each person who immediately prior to the Company Merger Effective Time held Company Common Shares, Company Warrants or Company Series A Preferred Shares that were exchanged for the right to receive the Company Common Share Merger Consideration, in the case of Company Common Shares, the Warrant Merger Consideration, in the case of Company Warrants, or the Company Series A Preferred Share Merger Consideration, in the case of the Company Series A Preferred Shares, as applicable, pursuant to Section 3.01 : (A) a letter of transmittal (which shall specify that delivery of Certificates shall be effected, and risk of loss and title to the Certificates shall pass to the

 

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Paying Agent, only upon delivery of the Certificates to the Paying Agent, and which letter shall be in such form and have such other provisions as Parent may reasonably specify) and (B) instructions for use in effecting the surrender of the holder’s Certificates in exchange for the Company Common Share Merger Consideration, the Warrant Merger Consideration, or the Company Series A Preferred Share Merger Consideration, as applicable, to which the holder thereof is entitled. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents reasonably satisfactory to the Company as may be appointed by Parent, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall receive in exchange therefor the Company Common Share Merger Consideration payable in respect of the Company Common Shares, the Warrant Merger Consideration, in the case of Company Warrants or the Company Series A Preferred Share Merger Consideration payable in respect of the Company Series A Preferred Shares, previously represented by such Certificate pursuant to the provisions of this Article III , and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Common Shares, Company Warrants or the Company Series A Preferred Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.03 , each Certificate shall be deemed at any time after the Company Merger Effective Time to represent only the right to receive, upon such surrender, the Company Common Share Merger Consideration, the Warrant Merger Consideration, or the Company Series A Preferred Share Merger, as applicable, as contemplated by this Section 3.03 . No interest shall be paid or accrue on the Merger Consideration.

(ii) Promptly after the Partnership Merger Effective Time (but in any event within five (5) Business Days), the Surviving Partnership shall cause the Paying Agent to mail to each person who immediately prior to the Partnership Merger Effective Time held OP Units that were exchanged for the right to receive the OP Unit Merger Consideration pursuant to Section 3.02 : (A) a letter of transmittal (which shall specify that delivery of Certificates shall be effected, and risk of loss and title to the Certificates shall pass to the Paying Agent, only upon delivery of the Certificates to the Paying Agent, and which letter shall be in such form and have such other provisions as Parent may reasonably specify) and (B) instructions for use in effecting the surrender of the holder’s Certificates in exchange for the OP Unit Merger Consideration to which the holder thereof is entitled. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents reasonably satisfactory to the Company as may be appointed by Parent, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall receive in exchange therefor the OP Unit Merger Consideration payable in respect of the OP Units previously represented by such Certificate pursuant to the provisions of this Article III , and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of OP Units that is not registered in the transfer records of the Operating Partnership, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such

 

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Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.03 , each Certificate shall be deemed at any time after the Partnership Merger Effective Time to represent only the right to receive, upon such surrender, the OP Unit Merger Consideration as contemplated by this Section 3.03 . No interest shall be paid or accrue on the OP Unit Merger Consideration.

(d) No Further Ownership Rights in Company Common Shares, Company Series A Preferred Shares, Company Warrants or OP Units . (i) At the Company Merger Effective Time, holders of Company Common Shares and Company Series A Preferred Shares shall cease to be, and shall have no rights as, stockholders of the Company other than the right to receive the Company Common Share Merger Consideration or the Company Series A Preferred Share Merger Consideration, as applicable, provided under this Article III . The Company Common Share Merger Consideration or the Company Series A Preferred Share Merger Consideration paid upon the surrender for exchange of Certificates representing Company Common Shares or Company Series A Preferred Shares in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights and privileges pertaining to the Company Common Shares and Company Series A Preferred Shares exchanged theretofore and represented by such Certificates. The Warrant Merger Consideration paid with respect to Company Warrants in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights and privileges pertaining to the canceled Company Warrants, and on and after the Company Merger Effective Time the holder of a Company Warrant shall have no further rights with respect to any Company Warrant, other than the right to receive the Warrant Merger Consideration as provided in Section 3.01(e) .

(ii) At the Partnership Merger Effective Time, holders of OP Units shall cease to be, and shall have no rights as, limited partners of the Operating Partnership other than the right to receive the OP Unit Merger Consideration provided under this Article III . The OP Unit Merger Consideration paid upon the surrender for exchange of Certificates representing OP Units in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights and privileges pertaining to the OP Units exchanged theretofore and represented by such Certificates.

(e) Termination of Exchange Fund . Any portion of the Exchange Fund which remains undistributed for six (6) months after the Company Merger Effective Time shall be delivered to Parent, and any holders of Company Common Shares, Company Series A Preferred Shares, Company Warrants or OP Units prior to the Company Merger or Partnership Merger, as the case may be, who have not theretofore complied with this Article III shall thereafter look only to Parent for payment of the applicable Merger Consideration.

(f) No Liability . None of Parent, MergerCo, Merger Partnership, the Surviving Corporation, the Company, the Operating Partnership or the Paying Agent, or any employee, officer, director, stockholder, partner, agent or Affiliate thereof, shall be liable to any person in respect of the applicable Merger Consideration, if the Exchange Fund has been delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

 

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(g) Investment of Exchange Fund . The Paying Agent shall invest the cash included in the Exchange Fund, as directed by Parent, on a daily basis. Any net profit resulting from, or interest or income produced by, such investments shall be placed in the Exchange Fund. To the extent that there are losses with respect to such investments, or the Exchange Fund diminishes for other reasons below the level required to make prompt payments of the applicable Merger Consideration as contemplated hereby, Parent shall promptly replace or restore the portion of the Exchange Fund lost through investments or other events so as to ensure that the Exchange Fund is, at all times, maintained at a level sufficient to make all such payments in full.

(h) Lost Certificates . If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit in form reasonably satisfactory to Parent of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the Surviving Corporation, the Surviving Partnership or the Paying Agent, the posting by such person of a bond in such amount as Parent, the Surviving Corporation, the Surviving Partnership or the Paying Agent reasonably may direct, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the applicable Merger Consideration payable in respect thereof pursuant to this Agreement.

SECTION 3.04 Withholding Rights . Parent, the Surviving Corporation, the Surviving Partnership or the Paying Agent, as applicable, shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Common Shares, Company Series A Preferred Shares, Company Warrants or the OP Units such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code, and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Company Common Shares, Company Series A Preferred Shares, Company Warrants or the OP Units in respect of which such deduction and withholding was made.

SECTION 3.05 Dissenters’ Rights . No dissenters’ or appraisal rights shall be available with respect to the Mergers or the other transactions contemplated hereby.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE

COMPANY AND THE OPERATING PARTNERSHIP

Except as set forth in the Disclosure Schedule, which Disclosure Schedule shall identify any exception to the representations and warranties contained in this Agreement and in which case any item disclosed on any Section therein shall be deemed to be disclosed with respect to all Sections under which such item may be relevant whether or not a specific cross reference appears if the disclosure in respect of the one Section is reasonably sufficient to inform the reader of the information required to be disclosed in respect of such other Section, the Company, the GP and the Operating Partnership hereby jointly and severally represent and warrant to the Buyer Parties as follows:

 

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SECTION 4.01 Organization and Qualification; Subsidiaries; Authority .

(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. The Company is duly qualified or licensed to do business as a foreign corporation and is in good standing under the laws of any other jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary, except where the failure to be so qualified, licensed or in good standing would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. The Company has all requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted.

(b) Each of the Company’s subsidiaries, including the GP and the Operating Partnership (the “ Subsidiaries ”), together with the jurisdiction of organization of each such subsidiary, the percentage of the outstanding equity of each such subsidiary owned by the Company and each other subsidiary of the Company, is set forth on Section 4.01(b) of the Disclosure Schedule. Except as set forth in Section 4.01(b) of the Disclosure Schedule, the Company does not own, directly or indirectly, any shares of stock of, or other equity interest in, any corporation, partnership, limited liability company, joint venture or other business association or entity. Each Subsidiary is a corporation, partnership or limited liability company duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as set forth on Section 4.01(b) of the Disclosure Schedule), except where the failure to be so validly existing or in good standing would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. Each of the Subsidiaries has the requisite corporate, limited partnership, limited liability company or similar power and authority to own, operate, lease and encumber its properties and to carry on its business as now conducted. Each of the Subsidiaries is duly qualified or licensed to do business, and is in good standing (to the extent applicable), in each jurisdiction where the character of the properties owned, leased or operated by it or the conduct or nature of its business makes such qualification or licensing necessary, except for jurisdictions in which the failure to be so qualified, licensed or in good standing would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

SECTION 4.02 Organizational Documents . The Company has previously provided or made available true and complete copies of the Company Charter and the Company Bylaws, the Operating Partnership Agreement and the certificate of limited partnership of the Operating Partnership (and, in each case, all amendments thereto) and all such documents are in full force and effect and no dissolution, revocation or forfeiture proceedings regarding the Company or the Operating Partnership have been commenced.

SECTION 4.03 Capitalization .

(a) The authorized shares of stock of the Company consist of 500,000,000 Company Common Shares, of which, as of the date hereof, 61,449,744 (including 1,498,362 unvested Company Restricted Shares) were issued and outstanding, and 100,000,000 shares of preferred stock, par value $0.01 per share, of the Company, of which 3,200,000 shares have been designated as “7.8750% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per

 

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share (the “ Company Series A Preferred Shares ”)” and were issued and outstanding. As of the date hereof, 529,850 Company Common Shares have been reserved for issuance upon redemption of outstanding OP Units (other than any OP Units or Series A Preferred OP Units held by the Company or any of its Subsidiaries) and 138,084 Company Common Shares have been reserved for issuance upon exercise of outstanding Company Warrants, subject to adjustment on the terms set forth in such Company Warrants. As of the date of this Agreement, the Company had no Company Common Shares or Company Series A Preferred Shares reserved for issuance or required to be reserved for issuance other than as described above. All such issued and outstanding shares of the Company are, and all shares subject to issuance as specified above, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable will be, when issued, duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights under any provisions of the MGCL, the Company Charter or the Company Bylaws. There are not any bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Common Shares, Company Series A Preferred Shares, OP Units or Series A Preferred OP Units (“ Voting Company Debt ”). As of the date hereof, there are 61,979,594 OP Units and 3,200,000 Series A Preferred OP Units issued and outstanding.

(b) Except for the Company Warrants, the OP Units or as set forth in Section 4.03(b) of the Disclosure Schedule, there are no existing options, warrants, calls, subscription rights, exercisable, convertible or exchangeable securities, “phantom” equity rights, equity appreciation rights or other rights, agreements or commitments (contingent or otherwise) that obligate the Company to issue, transfer or sell any Company Common Shares, Voting Company Debt or Company Series A Preferred Shares, or any investment that is convertible into or exercisable or exchangeable for any such shares. Section 4.03(b) of the Disclosure Schedule sets forth a true, complete and correct list of the Company Warrants, including the name of the Person to whom such Company Warrants have been granted, the number of shares subject to each Company Warrant, and the per share exercise price or purchase price for each Company Warrant. There are no existing options, warrants, calls, subscription rights, exercisable, convertible or exchangeable securities, “phantom” equity rights, equity appreciation rights or other rights, agreements or commitments (contingent or otherwise) that obligate the Operating Partnership to issue, transfer or sell any OP Units or Series A Preferred OP Units, or any investment that is convertible into or exercisable or exchangeable for any such shares.

(c) Section 4.03(c) of the Disclosure Schedule sets forth a true, complete and correct list of the unvested Company Restricted Shares as of the date of this Agreement, including the name of the Person to whom such Company Restricted Shares have been granted for each such award.

(d) Except as set forth in the Company Charter, the Company Bylaws or Section 4.03(d) of the Disclosure Schedule, there are no agreements or understandings to which the Company is a party with respect to the voting of any Company Common Shares or which restrict the transfer of any such shares, nor does the Company have knowledge of any third party agreements or understandings with respect to the voting of any such shares or which restrict the transfer of such shares.

 

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(e) Except as set forth in the Section 4.03(e) of the Disclosure Schedule, the Company is under no obligation, contingent or otherwise, by reason of any agreement to register the offer and sale or resale of any of its securities under the Securities Act.

(f) The Company is the sole stockholder of the GP, and, as of the date hereof, owns, directly or through the GP, 61,449,744 OP Units and 3,200,000 Series A Preferred OP Units. There are no existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments that obligate the Operating Partnership to issue, repurchase, redeem, transfer or sell any partnership interests of the Operating Partnership. The OP Units are subject only to the restrictions on transfer set forth in the Operating Partnership Agreement and those imposed by applicable securities laws.

SECTION 4.04 Authority Relative to this Agreement, Takeover Laws, Validity and Effect of Agreements .

(a) The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. Except for the approvals described in the following sentence, the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action on behalf of the Company. No other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement other than (i) the affirmative approval of the Company Merger by at least a majority of all the votes entitled to be cast on the matter by the holders of all outstanding Company Common Shares (the “ Company Stockholder Approval ”) and (ii) the filing and recordation of appropriate merger documents as required by the MGCL. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by each of Parent, MergerCo and Merger Partnership, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles.

(b) The Operating Partnership has all necessary partnership power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution, delivery and performance by the Operating Partnership of this Agreement and the consummation by the Operating Partnership of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary partnership action on behalf of the Operating Partnership, the GP has approved this Agreement and the Partnership Merger, and no other partnership proceedings or vote on the part of the Operating Partnership or its partners are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement other than the filing and recordation of appropriate merger documents as required by the DRULPA. This Agreement has been duly and validly executed and delivered by the GP on behalf of the Operating Partnership and, assuming the due authorization, execution and delivery by each of Parent, MergerCo and Merger Partnership, constitutes a legal, valid and binding

 

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obligation of the Operating Partnership, enforceable against the Operating Partnership in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles.

(c) The Company Board, at a meeting duly called and held, duly and unanimously adopted resolutions (i) adopting this Agreement, the Company Merger, the Partnership Merger and the other transactions contemplated hereby, (ii) determining that the terms of the Company Merger, the Partnership Merger and the other transactions contemplated hereby are fair to and in the best interests of the Company and its shareholders and (iii) recommending that the Company’s shareholders approve this Agreement and the Company Merger.

(d) Each of the Company and the GP, as applicable, has taken all action required to be taken by it in order to exempt this Agreement, the Company Merger and the Partnership Merger, and this Agreement, the Company Merger and the Partnership Merger are exempt, from the requirements of any “fair price,” “moratorium,” “control share acquisition,” “affiliate transaction,” “business combination” or other takeover Laws of the MGCL or the DRULPA.

SECTION 4.05 No Conflict; Required Filings and Consents .

(a) Except as set forth in Section 4.05(a) of the Disclosure Schedule, subject to the receipt of the Company Stockholder Approval, the execution and delivery by the Company and the Operating Partnership of this Agreement do not, and the performance of their respective obligations hereunder and thereunder will not, (i) conflict with or violate (1) the Company Charter or the Company Bylaws, (2) the Operating Partnership Agreement or the certificate of limited partnership of the Operating Partnership or (3) the certificate or articles of incorporation or bylaws or equivalent organizational documents of any Subsidiary, as amended or supplemented, (ii) assuming that all consents, approvals, authorizations and other actions described in subsection (b) of this Section 4.05 have been obtained and all filings and obligations described in subsection (b) of this Section 4.05 have been made, conflict with or violate any Law applicable to the Company, the Operating Partnership or any Subsidiary, or by which any property or asset of the Company, the Operating Partnership or any Subsidiary is bound, or (iii) require any consent or result in any violation or breach of or constitute (with or without notice or lapse of time or both) a default (or give to others any right of termination, amendment, acceleration or cancellation) under, or result in the triggering of any payments or result in the creation of a Lien or other encumbrance on any property or asset of the Company, the Operating Partnership or any Subsidiary pursuant to, any of the terms, conditions or provisions of any Permit, Material Contract, Franchise Agreement, Management Agreement Document, Ground Lease or Plan to which the Company or any Subsidiary is a party or by which it or any of its respective properties or assets may be bound, except, with respect to clauses (ii) and (iii), such triggering of payments, Liens, encumbrances, filings, notices, permits, authorizations, consents, approvals, violations, conflicts, breaches or defaults which would not, individually or in the aggregate, (A) prevent or materially delay consummation of the Mergers and the other transactions contemplated by this Agreement or (B) reasonably be expected to have a Company Material Adverse Effect.

 

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(b) The execution and delivery by the Company and the Operating Partnership of this Agreement does not, and the performance of their respective obligations hereunder and thereunder will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except (i) for (A) applicable requirements, if any, of the Securities Act of 1933, as amended (the “ Securities Act ”), the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), state securities or “blue sky” laws (“ Blue Sky Laws ”), (B) the filing with the Securities and Exchange Commission (the “ SEC ”) of a proxy statement relating to the Company Merger to be sent to the Company’s stockholders (as amended or supplemented from time to time, the “ Proxy Statement ”) and other written communications that may be deemed “soliciting materials” under Rule 14a-12, (C) any filings required under the rules and regulations of the New York Stock Exchange (the “ NYSE ”), (D) the filing of the Articles of Merger with, and the acceptance for record thereof by, the SDAT, and (E) the filing of the Partnership Merger Certificate with, and the acceptance for record thereof by, the DSOS, and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications would not, individually or in the aggregate, (A) prevent or materially delay consummation of the Mergers and the other transactions contemplated by this Agreement or (B) reasonably be expected to have a Company Material Adverse Effect.

SECTION 4.06 Permits; Compliance with Laws .

(a) Except as set forth in Section 4.06 of the Disclosure Schedule, each of the Company, the Operating Partnership and the other Subsidiaries is in possession of all franchises, grants, authorizations, licenses (including liquor licenses to the extent not held by a manager or the manager’s designee), permits, consents, certificates, approvals and orders of any Governmental Authority necessary for it to own, lease and operate its properties or to carry on its business as it is now being conducted (collectively, the “ Permits ”), and all such Permits are valid and in full force and effect, except where the failure to obtain and maintain the Permits, or the suspension or cancellation of, any of the Permits would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(b) None of the Company, the Operating Partnership, nor any Subsidiary is in conflict with, or in default, breach or violation of, (i) any Laws applicable to the Company, the Operating Partnership, or any Subsidiary or by which any property or asset of the Company, the Operating Partnership, or any Subsidiary is bound or (ii) any Permit, except for any such conflicts, defaults, breaches or violations which would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

SECTION 4.07 SEC Filings; Financial Statements; No Unknown Liabilities .

(a) The Company has filed all forms, reports and documents (including all exhibits) required to be filed by it with the SEC since January 1, 2004 (the “ Company SEC Reports ”). The Company SEC Reports, each as amended prior to the date hereof, (i) have been prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder, except where the failure to comply with such requirements would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, and (ii) did not, when filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

 

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(b) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Company SEC Reports was prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto) and each fairly presented, in all material respects, the consolidated financial position, results of operations and cash flows of the Company and its consolidated Subsidiaries, as of the respective dates thereof and for the respective periods indicated therein except as otherwise noted therein (subject, in the case of unaudited statements, to normal and recurring year end adjustments).

(c) Except (i) as set forth in Section 4.07(c) of the Disclosure Schedule, (ii) to the extent disclosed in the Company SEC Reports filed prior to the date of this Agreement and (iii) for liabilities incurred in the ordinary course of business consistent with past practice since December 31, 2006, none of the Company or its Subsidiaries had any liabilities or obligations of any nature (whether accrued, absolute, contingent, unknown or otherwise), whether or not required by GAAP to be set forth in a consolidated balance sheet of the Company or in the notes thereto, except for any such liabilities or obligations which would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(d) Each of the principal executive officer and the principal financial officer of the Company has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act or Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (“ SOX ”) and the rules and regulations of the SEC promulgated thereunder with respect to the Company SEC Reports, and, to the knowledge of the Company, the statements contained in such certifications are true and correct. For purposes of the preceding sentence hereof, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in SOX. Neither the Company nor any of the Company Subsidiaries has outstanding, or has arranged any outstanding, “extensions of credit” to trustees, directors or executive officers within the meaning of Section 402 of SOX.

(e) Except as set forth in Section 4.07(e) of the Disclosure Schedule, the Company has not received any oral or written notification of a (i) “reportable condition” or (ii) “material weakness” in the Company’s internal controls, and, to the knowledge of the Company, there is no set of circumstances that would reasonably be expected to result in a “reportable condition” or “material weakness” in the internal controls of the Company. For purposes of this Agreement, the terms “reportable condition” and “material weakness” shall have the meanings assigned to them in the Statements of Auditing Standards 60, as in effect on the date hereof.

(f) None of the Company or any Subsidiary is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet, partnership or any similar contract or arrangement (including any contract or arrangement relating to any transaction or relationship between or among the Company and any Subsidiary, on the one hand, and any unconsolidated affiliate, including any structured finance, special purpose or limited purpose entity or person, on the other hand) or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC), where the result, purpose or intended effect of such contract or arrangement is to avoid disclosure of any material transaction involving, or material liabilities of, the Company or any Subsidiary in the Company SEC Reports.

 

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(g) The books of account and other financial records of the Company and the Subsidiaries are true, complete and correct in all material respects and have been maintained in accordance with good business practices. The Company has made available to Parent correct and complete copies of the minutes of all meetings of the stockholders, members, partners, the boards of directors or trustees and each committee thereof of the Company and each Subsidiary held since January 1, 2005.

(h) The Company is in material compliance with the applicable provisions of SOX, the rules and regulations of the SEC adopted in connection therewith, and the applicable listing standards and corporate governance rules of the NYSE. The Company has made available to Parent correct and complete copies of all material written correspondence between the SEC, on the one hand, and the Company and any Subsidiary, on the other hand, occurring since December 31, 2005 and prior to the date hereof and will, promptly following the receipt thereof, make available to the Parent any such material correspondence sent or received after the date hereof. To the knowledge of the Company, none of the Company SEC Reports filed prior to the date hereof is the subject of ongoing SEC review or outstanding SEC comment.

SECTION 4.08 Absence of Certain Changes or Events . Except as disclosed in the Company SEC Reports or as set forth in Section 4.08 of the Disclosure Schedule, since December 31, 2006 through the date hereof, (a) each of the Company, the Operating Partnership and the other Subsidiaries has conducted its business in the ordinary course consistent with past practice and have not taken any of the actions listed in clauses (c), (d), (f), (h), (i) or (o) of Section 6.01 and (b) there has not been an event, occurrence, effect or circumstance that, individually or in the aggregate, has resulted or would reasonably be expected to result in a Company Material Adverse Effect.

SECTION 4.09 Absence of Litigation . Except (i) as listed in Section 4.09 of the Disclosure Schedule, (ii) as set forth in the Company SEC Reports filed prior to the date of this Agreement, or (iii) for suits, claims, Actions, proceedings or investigations arising from the ordinary course of operations of the Company and its Subsidiaries involving (A) collection matters or (B) routine, ordinary course personal injury or other routine, ordinary course tort litigation, in each case consistent with similar claims over the past 24 months, which are covered by insurance (subject to customary deductibles) or for which all material costs and liabilities arising therefrom are reimbursable pursuant to common area maintenance or similar agreements, there is no Action pending or, to the knowledge of the Company, threatened in writing against the Company or any of its Subsidiaries or any of its or their respective properties or assets except as would not, individually or in the aggregate, (x) prevent or materially delay consummation of the Mergers and the other transactions contemplated by this Agreement or (y) reasonably be expected to have a Company Material Adverse Effect. None of the Company and its Subsidiaries is subject to any order, judgment, writ, injunction or decree, except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

 

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SECTION 4.10 Employee Benefit Plans .

(a) Section 4.10(a) of the Disclosure Schedule lists all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) and all stock option, stock purchase, restricted stock plans and all material bonus, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements to which the Company or any ERISA Affiliate is a party, with respect to which the Company or any ERISA Affiliate has any obligation or which are maintained, contributed to or sponsored by the Company or any Subsidiary for the benefit of any current or former employee, officer, director or consultant of the Company or any ERISA Affiliate (collectively, the “ Plans ”). The Company has made available to Parent copies, which are correct and complete in all material respects, of the following: (i) the Plans, (ii) the annual report (Form 5500) filed with the Internal Revenue Service (“ IRS ”) for the last three plan years, (iii) the most recently received IRS determination letter, if any, relating to a Plan, (iv) the most recently prepared actuarial report or financial statement, if any, relating to a Plan, (v) the most recent summary plan description for such Plan (or other descriptions of such Plan provided to employees) and all modifications thereto, and (vi) all material correspondence with the Department of Labor or the IRS.

(b) Each Plan has been operated in accordance with its terms and the requirements of all applicable Laws, including ERISA and the Code, except for such noncompliance that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. Each Plan that is a “nonqualified deferred compensation plan” (as defined in Section 409A(d)(1) of the Code) has been operated since January 1, 2005 in good faith compliance with Section 409A of the Code, IRS Notice 2005-1 and Proposed Regulation Sections 1.409A-1 through 1.409A-6 inclusive. No Action is pending or, to the knowledge of the Company, threatened with respect to any Plan (other than claims for benefits in the ordinary course) that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. No administrative investigation, audit or other administrative proceeding by any Governmental Authority with respect to a Plan is pending, in progress, or to the knowledge of the Company, threatened, that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(c) Each Plan that is intended to be qualified under Section 401(a) of the Code or Section 401(k) of the Code has received a favorable determination letter from the IRS, or is entitled to rely on a favorable opinion issued by the IRS, and to the knowledge of the Company no fact or event has occurred since the date of such determination letter or letters from the IRS to adversely affect the qualified status of any such Plan or the exempt status of any such trust that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. With respect to each Plan, (i) there has been no “prohibited transaction,” as such term is defined in Section 4975 of the Code or Section 406 of ERISA, within the last five (5) years which has or is reasonably likely to result in material liability to the Company or any of its Subsidiaries; and (ii) neither the Company, any of its Subsidiaries, nor any individual serving as a fiduciary of a Plan has breached the fiduciary rules of ERISA which would subject the Company or any of its Subsidiaries to any Tax or penalty imposed under Section 4975 of the Code or Section 502(i), (j), or (l) of ERISA, that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

 

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(d) Except as set forth on Section 4.10(d) of the Disclosure Schedule, neither the Company nor any ERISA Affiliate sponsors, has sponsored, contributes or been required to contribute to any plan that is subject to the provisions of Title IV of ERISA or Section 302 or Section 412 of the Code, is an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code, a voluntary employee beneficiary association or is a multiemployer plan within the meaning of Section 3(37) of ERISA. Except as set forth in Section 4.10(d) of the Disclosure Schedule, neither the Company nor any ERISA Affiliate sponsors or has sponsored any Plan that provides for any post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees of the Company or any ERISA Affiliate, except as required by Section 4980B of the Code or continuation coverage rights under state law.

(e) Full payment has been made, or otherwise properly accrued on the books and records of the Company and any ERISA Affiliate, of all amounts that the Company and any ERISA Affiliate are required under the terms of the Plans to have paid as contributions to such Plans on or prior to the date hereof (excluding any amounts not yet due) and the contribution requirements, on a prorated basis, for the current year have been made or otherwise properly accrued on the books and records of the Company through the Closing Date.

(f) Except as set forth in Section 4.10(f) of the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of the Company Merger and the transactions contemplated hereby will (either alone or in conjunction with any other event) result in, cause the vesting, exercisability or delivery of, or increase in the amount or value of, any payment, right or other benefit to any employee, officer, director or other service provider of the Company or any ERISA Affiliate.

(g) For purposes of this Section 4.10 , an entity is an “ ERISA Affiliate ” of the Company if it would be considered a single employer with the Company under 4001(b) of ERISA or part of the same controlled group as the Company for purposes of Section 302(d)(8)(C) of ERISA.

SECTION 4.11 Labor Matters . Except as set forth in Section 4.11 of the Disclosure Schedule or as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) neither the Company nor any Subsidiary is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or any Subsidiary; (ii) neither the Company nor any Subsidiary has breached or otherwise failed to comply with any provision of any such agreement or contract, and there are no grievances or unfair l