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SERIES C CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT

Purchase and Sale Agreement

SERIES C CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK 

 

PURCHASE AGREEMENT | Document Parties: SUNSTONE HOTEL INVESTORS, INC | SUNSTONE HOTEL PARTNERSHIP, LLC You are currently viewing:
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SUNSTONE HOTEL INVESTORS, INC | SUNSTONE HOTEL PARTNERSHIP, LLC

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Title: SERIES C CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT
Governing Law: Maryland     Date: 5/3/2005
Law Firm: Mayer, Brown, Rowe Maw LLP ;Sullivan Cromwell LLP    

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EXHIBIT 10.5

EXECUTION COPY

 

SERIES C CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK

 

PURCHASE AGREEMENT

 

DATED AS OF APRIL 27, 2005

 

AMONG

 

SECURITY CAPITAL PREFERRED GROWTH INCORPORATED,

 

SUNSTONE HOTEL INVESTORS, INC.

 

AND

 

SUNSTONE HOTEL PARTNERSHIP, LLC

 

 


TABLE OF CONTENTS

 

         Page

I.       

  PURCHASE AND SALE OF STOCK    3
    1.1    Sale and Issuance of Series C Preferred Stock    3
    1.2    Closing.    3

II.

  REPRESENTATIONS AND WARRANTIES OF THE COMPANY    4
    2.1    No Registration Under the Securities Act    4
    2.2    Organization of the Company    4
    2.3    Organization of Significant Subsidiaries    4
    2.4    Authorization    5
    2.5    Company Capitalization    5
    2.6    Capitalization    5
    2.7    Authorization of Series C Preferred Stock    5
    2.8    Authorization of Subsidiary Capital Stock    5
    2.9    Shares Reserved for Issuance    6
    2.10    Authorization of Common Stock    6
    2.11    Authorization of Preferred Units    6
    2.12    Capitalization of Operating Partnership    6
    2.13    Registration Rights    7
    2.14    Defaults    7
    2.15    Legal Compliance    7
    2.16    Document Authority    8
    2.17    Enforceability    8
    2.18    Approvals    8
    2.19    No Material Adverse Change    8
    2.20    No Material Loss    8
    2.21    Title; Leases    9
    2.22    Insurance    9
    2.23    Property Improvement Plans    9
    2.24    Compliance with Laws    9
    2.25    Licenses, Permits, Etc    10
    2.26    Litigation    10
    2.27    Proceedings; Contracts    10

 

i

 


 

TABLE OF CONTENTS

(continued)

 

              Page

   

2.28

   Investment Company Act    11
   

2.29

   Actions, Etc    11
   

2.30

   Compliance with Environmental Laws    11
   

2.31

   Costs of Compliance with Environmental Laws    11
   

2.32

   Environmental Audits    11
   

2.33

   Health and Safety    12
   

2.34

   No Material Change    13
   

2.35

   Intellectual Property    13
   

2.36

   Labor    13
   

2.37

   Insurance    13
   

2.38

   Internal Controls    13
   

2.39

   ERISA    14
   

2.40

   Plan Assets    14
   

2.41

   Independent Public Accountants    14
   

2.42

   REIT Status    14
   

2.43

   REOC Status    14
   

2.44

   Taxes    15
   

2.45

   Financial Statements    15
   

2.46

   Stabilization    16
   

2.47

   Sarbanes-Oxley    16
   

2.48

   Related Party Transactions    16
   

2.49

   Non-renewal of Material Contracts    16
   

2.50

   Disclosure Controls    16
   

2.51

   Board Committees    17
   

2.52

   Use of Proceeds    17
   

2.53

   Partnership Status    17
   

2.54

   Securities Act and Exchange Act Compliance    17
   

2.55

   Broker Dealer Status    17
   

2.56

   Certificates    18
   

2.57

   Other Issuances    18
   

2.58

   Improper Payments    18

 

ii

 


 

TABLE OF CONTENTS

(continued)

 

              Page

    2.59    Securities Issuances    18

III.

  REPRESENTATIONS AND WARRANTIES OF THE INVESTOR    19
   

3.1

   Power, Authority and Enforceability    19
   

3.2

   Compliance with Other Instruments    19
   

3.3

   Ownership Limitations    19
   

3.4

   Organization    19
   

3.5

   Consents and Approvals    20
   

3.6

   Accredited Investor    20
   

3.7

   Absence of Market    20
   

3.8

   Investment Purposes    20
   

3.9

   Access and Information    20

IV.

  CONDITIONS OF THE INVESTOR’S OBLIGATIONS AT THE CLOSING    21
   

4.1

   Preferred Articles Supplementary    21
   

4.2

   Representations and Warranties    21
   

4.3

   Performance    21
   

4.4

   Opinion of Company Counsel    21
   

4.5

   Waiver of Ownership Limitations    21
   

4.6

   Amendment to Operating Partnership Agreement    22
   

4.7

   Officer’s Certificate    22
   

4.8

   Proceedings    22
   

4.9

   No Injunction    22
   

4.10

   Registration Rights Agreement    22
   

4.11

   Related Transactions    22
   

4.12

   Acknowledgement Letter    23
   

4.13

   Payment of Commitment Fee    23

V.

  CONDITIONS OF THE COMPANY’S OBLIGATIONS AT THE CLOSING    23
   

5.1

   Representations and Warranties    23
   

5.2

   Performance    24
   

5.3

   No Injunction    24
   

5.4

   Related Transactions    24

VI.

  COVENANTS    24

 

iii

 


 

TABLE OF CONTENTS

(continued)

 

              Page

    6.1    No General Solicitation; Integration    24
   

6.2

   Reports    24
   

6.3

   Maintenance of REIT and REOC Status    25
   

6.4

   Maintenance of VCOC Status    25
   

6.5

   Restrictions on Investments    26
   

6.6

   No Public Disclosure    27
   

6.7

   Participation Rights    27
   

6.8

   Annual Opinions of Company Counsel    29
   

6.9

   Investment Company    29
   

6.10

   Listing of Common Stock    29
   

6.11

   Operating Partnership Securities    29
   

6.12

   Publicly Traded Partnership    30
   

6.13

   Prohibition on Issuance of Series C Preferred Stock    30
   

6.14

   Director Independence    30
   

6.15

   Related Party Transactions    30
   

6.16

   Compliance Certificate    30
   

6.17

   Merger; Consolidation    31
   

6.18

   Tender Offer    31
   

6.19

   Operating Partnership Restriction    31
   

6.20

   Determination of Value    31
   

6.21

   Registration Rights Agreement    32
   

6.22

   Related Agreements    32
   

6.23

   Right of First Offer    32

VII.

  MISCELLANEOUS    33
   

7.1

   Survival of Warranties and Covenants    33
   

7.2

   Termination    33
   

7.3

   Successors and Assigns    34
   

7.4

   Governing Law    34
   

7.5

   Remedies    35
   

7.6

   Specific Performance    35
   

7.7

   Time of Essence    35

 

iv

 


 

TABLE OF CONTENTS

(continued)

 

              Page

   

7.8

   Counterparts    35
   

7.9

   Titles and Subtitles    35
   

7.10

   Notices    35
   

7.11

   Finder’s Fees    37
   

7.12

   Expenses    37
   

7.13

   Amendments and Waivers    37
   

7.14

   Severability    37
   

7.15

   Entire Agreement    38
   

7.16

   Rules of Construction    38
   

7.17

   Business Relationship    38
   

7.18

   Signatory Exculpation    39
   

7.19

   Incorporation by Reference    39
   

7.20

   Further Assurances    39

 

v

 


 

TABLE OF CONTENTS

(continued)

 

SCHEDULES

 

2.2

   Company Jurisdictions

2.3

   Significant Subsidiary Jurisdictions

2.13

   Registration Rights

2.32

   Environmental Audits

 

EXHIBITS

 

A

   Form of Series C Preferred Articles Supplementary    E-1

B.

   Form of Registration Rights Agreement    E-2

C.

   Matters to be Addressed in Opinions    E-3
     C-1    Corporate Matters    E-4
     C-2    Tax Matters     
     C-3    Real estate operating company Matters     

D.

   Form of Waiver of Ownership Limitations    E-8

E.

   Form of Purchase and Sale Agreement by and between Marriott International, Inc. and Sunstone Hotel Investors, Inc.    E-9

F.

   Form of Stock Purchase Agreement with BIP REIT Private, Ltd.    E-10

G.

   Form of Acknowledgement Letter    E-11

H.

   Form of Press Release    E-12

I.

   Form of Compliance Certificate    E-13

 

vi

 


SERIES C CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK

PURCHASE AGREEMENT

 

This SERIES C CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of the 25th day of April, 2005 by and among Sunstone Hotel Investors, Inc., a Maryland corporation (the “Company”), Sunstone Hotel Partnership, LLC, a Delaware limited partnership (the “Operating Partnership”) and Security Capital Preferred Growth Incorporated, a Maryland corporation (the “Investor”).

 

W I T N E S S E T H

 

WHEREAS, the Company wishes to issue and sell to the Investor shares of Series C Cumulative Convertible Redeemable Preferred Stock, $0.01 par value per share, of the Company (the “Series C Preferred Stock”), the terms of which shall be as set forth in the Series C Preferred Articles Supplementary (the “Series C Preferred Articles Supplementary”), in the form of Exhibit A attached hereto, with changes from such forms, if any, as shall be approved in writing by the Investor, at the closing and in accordance with and subject to the terms and conditions set forth herein; and

 

WHEREAS, the Investor wishes to purchase the Series C Preferred Stock on the terms and subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, agreements and warranties herein contained, the parties hereby agree as follows:

 

D E F I N I T I O N S

 

The following is a list of defined terms used in this Agreement together with the corresponding section of this Agreement in which such terms are defined.

 

Agreement

   First Paragraph

Business Day

   § 1.2

CERCLA

   § 2.32

Charter

   § 2.7

Closing

   § 1.2

Closing Date

   § 1.2

Closing Notice

   § 1.2

Code

   § 2.39

Commission

   § 2.1

Commitment Fee

   § 4.13

Common Stock

   § 2.6

Common Units

   § 2.8

 

 


Company

   First Paragraph

Company Leases

   § 2.21

Company Properties

   § 2.21

Contributing Entities

   § 2.28

Environmental Laws

   §2.31

Environmental Statutes

   §2.32

Equivalent Securities

   § 6.7(b)

ERISA

   § 2.39

Exchange Act Reports

   § 2.27

Exchange Act

   § 2.45

Formation and Structuring Transactions

   § 2.8

Governmental Authority

   § 2.32

Hazardous Materials

   § 2.32

Investment Company Act

   § 2.28

Investor

   First Paragraph

Liquidated Damages

   § 7.2

Liquidation Preference

   § 6.23

Material Adverse Effect

   § 2.2

NASD

   § 2.55

NASDAQ

   § 6.23

NYSE

   § 2.51

Offer

   § 6.23

Offered Shares

   § 6.23

Operating Partnership

   First Paragraph

Participation Securities

   § 6.7(a)

Prospectus

   §2.5

Purchase and Sale Agreement

   §2.52

Purchase Price

   §1.1(b)

Registration Statement

   §2.20

REIT

   § 2.42

REOC

   § 2.43

Returns

   § 2.44

SDAT

   § 1.1(a)

 

2

 


Securities Act

   § 2.1

Series C Per-Share Price

   §1.1(b)

Series C Preferred Articles Supplementary

   Recitals

Series C Preferred Stock

   Recitals

Series C Preferred Units

   § 4.6

Significant Subsidiaries

   § 2.3

Substantially Similar Securities

   § 6.17

Taxes

   § 2.44

Trading Day

   § 6.23

Transaction Documents

   § 2.16

 

I. PURCHASE AND SALE OF STOCK.

 

  1.1 Sale and Issuance of Series C Preferred Stock.

 

(a) The Company shall adopt and file with the State Department of Assessments and Taxation of Maryland (the “SDAT”) on or before the Closing Date (as defined below) the Series C Preferred Articles Supplementary.

 

(b) Subject to the terms and conditions of this Agreement, at the Closing (as defined below) the Company agrees to issue and sell to the Investor (or one or more of its affiliates) and the Investor (either directly or through one or more of its affiliates) agrees to purchase from the Company at the Closing 4,102,564 shares of Series C Preferred Stock, at a per-share price of $24.13125 (the “Series C Per-Share Price”), resulting in an aggregate purchase price of $98,999,998 (the “Purchase Price”).

 

  1.2 Closing.

 

The closing (the “Closing”) of the purchase and sale of the Series C Preferred Stock shall take place at the offices of Mayer, Brown, Rowe & Maw LLP, 190 South LaSalle Street, Chicago, Illinois 60603 at 9:00 a.m., Chicago time, on the date selected by the Company upon ten (10) Business Days prior written notice (the “Closing Notice”) to the Investor, which date may not be prior to June 1, 2005, or at such other location, date and time as may be agreed upon by the Company and the Investor (such date and time being hereinafter referred to as the “Closing Date”). A “Business Day” shall be any day other than a Saturday or Sunday which is not a day on which banking institutions in New York City, New York are authorized or required by law, regulation or executive order to close. At the Closing, the Company shall issue and deliver to the Investor a stock certificate in definitive form, registered in the name of the Investor, representing the Series C Preferred Stock being purchased by the Investor hereunder at the Closing, and the Investor shall deliver to the Company, against delivery of the stock certificate representing the Series C Preferred Stock then being purchased, the Purchase Price by wire transfer of immediately available funds payable to the Company’s order.

 

3

 


II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

Each of the Company and the Operating Partnership, jointly and severally, represent and warrant, as of the date of this Agreement and as of the Closing Date (unless otherwise noted that such representation or warranty is only made as of the date of this Agreement), that:

 

  2.1 No Registration Under the Securities Act.

 

Assuming the continuing accuracy of the Investor’s representations set forth in Article III hereof and compliance by the Investor with the transfer restrictions set forth in the legends on the certificates evidencing the Series C Preferred Stock and Common Stock deliverable upon conversion thereof, it is not necessary in connection with the offer, sale and delivery of the Series C Preferred Stock in the manner contemplated by this Agreement to register the Series C Preferred Stock or the Common Stock issuable upon conversion thereof, under the Securities Act of 1933, as amended (together with the rules and regulations of the Securities and Exchange Commission (the “Commission”) thereunder, the “Securities Act”).

 

  2.2 Organization of the Company.

 

The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Maryland, has the corporate power and authority to own its properties and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in the jurisdictions set forth on Schedule 2.2 attached hereto, which are the only jurisdictions in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified would not have a material adverse effect on the Company and its subsidiaries, taken as a whole (a “Material Adverse Effect”).

 

  2.3 Organization of Significant Subsidiaries.

 

Each “significant subsidiary” of the Company (as such term is defined in Rule 1-02(w) of Regulation S-X) (collectively, the “Significant Subsidiaries”), which includes, without limitation, the Operating Partnership, Sunstone Hotel TRS Lessee, Inc., a Delaware corporation, and Buy Efficient, L.L.C., a Delaware limited liability company, has been duly incorporated or organized, is validly existing as a corporation or limited liability company, as the case may be, in good standing under the laws of the jurisdiction of its incorporation or formation, has the power and authority (corporate and otherwise) to own its properties and to conduct its business and is in good standing in each jurisdiction set forth on Schedule 2.3 attached hereto, which are the only jurisdictions in which the conduct of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified or be in good standing would not have a Material Adverse Effect. Other than as disclosed on Schedule 2.3 attached hereto, the Company does not own, directly or indirectly, any capital stock or other equity securities of any other corporation or any ownership interest in any partnership, joint venture or other association.

 

4

 


  2.4 Authorization.

 

The Transaction Documents (as defined below) have been duly authorized, executed and delivered by the Company and the Operating Partnership.

 

  2.5 Company Capitalization.

 

The authorized stock of the Company conforms in all material respects to the description thereof contained in the Company’s Prospectus dated March 11, 2005 and filed with the Securities and Exchange Commission on March 14, 2005 (the “Prospectus”). As of the date hereof, the issued and outstanding stock of the Company, is, in all material respects, as set forth in the Prospectus under “Capitalization.”

 

  2.6 Capitalization.

 

The shares of common stock, par value $0.01 per share, of the Company (“Common Stock”) outstanding prior to the issuance of the Series C Preferred Stock have been duly authorized and are validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances, equities or claims. None of the shares of Common Stock outstanding prior to the issuance of the Series C Preferred Stock was issued in violation of preemptive or other similar rights of any security holder in the Company.

 

  2.7 Authorization of Series C Preferred Stock.

 

The Series C Preferred Stock has been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances, equities or claims, and the issuance of such Shares will not be subject to any preemptive or similar rights. The certificate to be used to evidence the Series C Preferred Stock will be in substantially a form agreed to between the Company and the Investor and will, as of the Closing Date (as defined below), be in proper form and will comply in all material respects with all applicable legal requirements and the requirements of the charter and bylaws of the Company. At or prior to the Closing, the Company will have executed and filed the Series C Preferred Articles Supplementary to the Company’s Amended and Restated Articles of Incorporation (collectively with all amendments and supplements thereto, the “Charter”) with the Maryland State Department of Assessments and Taxation establishing the terms of the Series C Preferred Stock.

 

  2.8 Authorization of Subsidiary Capital Stock.

 

As of the date hereof, all of the issued and outstanding shares of capital stock or other ownership interests of each Significant Subsidiary have been duly and validly authorized and issued, are fully paid and are non-assessable and are owned directly or indirectly by the Company or the Operating Partnership (other than the common membership interests (the “Common Units”) of the Operating Partnership issued to Sunstone Hotel Investors, L.L.C., Sunstone/WB Hotel Investors IV, LLC, WB Hotel Investors, LLC and Sunstone/WB Manhattan Beach, LLC (collectively, the “Contributing Entities”) in connection with the transactions contemplated by the Structuring and Contribution Agreement dated as of July 2, 2004, by and among the Operating Partnership, the Company, the Contributing Entities and Alter SHP, LLC

 

5

 


(the “Formation and Structuring Transactions”), free and clear of all liens, encumbrances, equities or claims, other than in connection with certain indebtedness described in the Prospectus under the caption “Outstanding Indebtedness.”

 

  2.9 Shares Reserved for Issuance.

 

As of the date hereof, except for the shares of Common Stock reserved for issuance (i) upon conversion of the Common Units issued to the Contributing Entities in connection with the Formation and Structuring Transactions and (ii) in connection with the Company’s 2004 long-term incentive plan and senior management incentive plan described in the Prospectus, no shares of stock of the Company are reserved for any purpose; and except as described above in this paragraph (i), there are no outstanding (x) securities of the Company or any of its subsidiaries convertible into or exchangeable for any capital stock, partnership interests, membership interests or other equity interests, as the case may be, in the Company or any of its subsidiaries, (y) options, rights (preemptive or otherwise) or warrants to purchase or subscribe for shares of Common Stock or any other securities of the Company, or (z) obligations of the Company or any of its subsidiaries to issue any such securities, options, rights or warrants. As of the date hereof, other than 4,100,000 shares of Series A Cumulative Redeemable Preferred Stock and 750,000 shares of Series B Cumulative Redeemable Preferred Stock, no shares of any class or series of preferred stock, par value $0.01 per share, are issued.

 

  2.10  Authorization of Common Stock.

 

The shares of Common Stock issuable upon conversion of the Series C Preferred Stock have been duly and validly authorized by all necessary corporate action, have been duly and validly reserved for issuance, and when issued upon such conversion, will be duly and validly issued, fully paid and non-assessable and will not be subject to any preemptive or similar rights and will be free and clear of all liens, encumbrances, equities or claims and will be issued in compliance with applicable federal and state securities laws.

 

  2.11  Authorization of Preferred Units.

 

The Series C Preferred Units have been duly authorized and, when issued and duly delivered against contribution of the net proceeds of the sale of the Series C Preferred Stock to the Investor, will be validly issued, fully paid and non-assessable (except to the extent that such non-assessability may be affected by Section 17-607 of the Delaware Revised Uniform Limited Partnership Act), free and clear of any pledge, lien, encumbrance, security interest or other claim, and the issuance of the Series C Preferred Units by the Operating Partnership to the Company is not subject to preemptive or other similar rights. There are no outstanding options, rights (preemptive or otherwise) or warrants to purchase or subscribe for Common Units, Preferred Units or other securities of the Operating Partnership.

 

  2.12  Capitalization of Operating Partnership.

 

The Company is the sole managing member of the Operating Partnership. The limited liability company agreement of the Operating Partnership and the aggregate percentage interests of the Company and the members in the Operating Partnership are as set forth in the Prospectus.

 

6

 


  2.13  Registration Rights.

 

Except as set forth disclosed in Schedule 2.13 attached hereto, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company. There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to include such securities with the Series C Preferred Stock, and underlying shares of Common Stock, to be registered pursuant to the Registration Rights Agreement.

 

  2.14  Defaults.

 

Neither the Company nor any of its Significant Subsidiaries is in (i) violation of its organizational documents, or (ii) default (whether with or without the giving of notice or passage of time or both) in the performance or observance of any obligation, agreement, covenant or condition contained in any lease, indenture, mortgage, deed of trust, loan agreement, operating agreement, property management agreement, franchise agreement or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except in the case of clause (ii) to the extent that such default would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

  2.15  Legal Compliance.

 

The Company and its subsidiaries are in compliance with all applicable federal, state, local or foreign laws, regulations, rules, decrees, judgments and orders, including those relating to transactions with affiliates, except where any failures to be in compliance would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The execution and delivery by the Company of this Agreement, the issuance and sale of the Series C Preferred Stock to be sold by the Company and the compliance by the Company and the Operating Partnership with all of the provisions of this Agreement and all other transactions herein contemplated by the Company or the Operating Partnership, including, without limitation, the issuance of the Series C Preferred Stock at the Closing Date, do not and will not: (A) conflict with, or result in any breach of, or constitute a default under nor constitute any event which (with notice, lapse of time, or both) would constitute a breach of or default under (i) any provisions of the charter (including, without limitation, the articles supplementary) or bylaws or other organizational documents of the Company or any Significant Subsidiary, (ii) any provision of any license, lease, indenture, mortgage, deed of trust, loan, credit, operating agreement, property management agreement or other agreement or instrument to which any of them is a party or by which any of them or their respective properties or assets may be bound or affected, (iii) any law or regulation binding upon or applicable to the Company or any Significant Subsidiary or any of their respective properties or assets or (iv) any decree, judgment or order applicable to the Company or any Significant Subsidiary; or (B) result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or assets of the Company or any Significant Subsidiary, except in each case described in clauses (A)(ii) through (iv) and (B) of this sentence for such conflicts, breaches, defaults and violations as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

7

 


  2.16  Document Authority.

 

Each of the Company and the Operating Partnership has the power and authority to enter into and perform this Agreement and the Registration Rights Agreement (collectively, the “Transaction Documents”) and to consummate the transactions contemplated herein and therein.

 

  2.17  Enforceability.

 

Assuming due authorization, execution and delivery of this Agreement by the Investor, the Transaction Documents are the legally valid and binding obligations of the Company and the Operating Partnership, enforceable against each of them in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and by general equitable principles, and except to the extent that the indemnification and contribution provisions may be limited by U.S. federal or state securities laws and public policy considerations in respect thereof.

 

  2.18  Approvals.

 

No consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares and approval of the New York Stock Exchange for listing of the Common Stock issuable upon conversion of the Series C Preferred Stock.

 

  2.19  No Material Adverse Change.

 

There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement).

 

  2.20  No Material Loss.

 

Neither the Company nor any Significant Subsidiary has sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the registration statement of which the Prospectus forms a part (the “Registration Statement”) and the Prospectus, and there has not been (i) any change in the capital stock or members’ equity, as applicable, or long-term debt of the Company or any of its subsidiaries or (ii) any Material Adverse Effect.

 

8

 


  2.21  Title; Leases.

 

The Company and its subsidiaries have good and marketable title in fee simple to, or a valid leasehold interest in, all real property owned by them (the “Company Properties”), and good and marketable title to all personal property owned by them that are material to the business of the Company, in each case free and clear of all liens, encumbrances, security interests and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any Company Property, buildings and equipment held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases (such leases, the “Company Leases”) with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. Neither the Company nor any of its subsidiaries is in default under any of the Company Leases, relating to, or any of the mortgages or other security documents or other agreements encumbering or otherwise recorded against, the Company Properties that would reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries knows of any event, which but for the passage of time or the giving of notice, or both, would constitute a default under any of such documents or agreements that would reasonably be expected to have a Material Adverse Effect.

 

  2.22  Insurance.

 

The Company or its subsidiaries have either (i) an owner’s or leasehold title insurance policy, from a nationally recognized title insurance company licensed to issue such policy, on each Company Property located, as the case may be, by the Company or its subsidiaries, that insures the fee or leasehold interest, as the case may be, in the Company Properties, which policies include only commercially reasonable exceptions, and with coverage in amounts at least equal to amounts that are generally deemed in the Company’s industry to be commercially reasonable in the markets where the Company’s Properties are located, or (ii) one or more lender’s title insurance policies insuring the lien of the mortgages encumbering the Company Properties with coverage, in the aggregate, equal to the maximum aggregate principal amount of indebtedness incurred by the Company or its subsidiaries and secured by the Company Properties.

 

  2.23  Property Improvement Plans.

 

The Company and each of its subsidiaries is in compliance with all “property improvement plans” required by its franchisors, except for such failures to comply that would not, in the aggregate, have a Material Adverse Effect.

 

  2.24  Compliance with Laws.

 

Each of the Company Properties complies with all applicable codes, laws and regulations (including, without limitation, building and zoning codes, laws and regulations and laws relating to access to the Company Properties), except for such failures to comply that would not, in the aggregate, have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has knowledge of any pending or threatened condemnation proceeding, zoning

 

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change or other proceeding or action that would reasonably be expected to have a Material Adverse Effect.

 

  2.25  Licenses, Permits, Etc.

 

Each of the Company and its subsidiaries has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any U.S. federal, state or local law, regulation or rule, and has obtained all necessary authorizations, consents and approvals from other persons, required in order to conduct its business as described in the Prospectus, except to the extent that any failure to have any such licenses, authorizations, consents or approvals, to make any such filings or to obtain any such authorizations, consents or approvals would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any of its subsidiaries is in violation of, in default under, or has received any notice regarding a possible violation, default or revocation of any such license, authorization, consent or approval or any U.S. federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the Company or any subsidiary that would reasonably be expected to have a Material Adverse Effect.

 

  2.26  Litigation.

 

There are no legal or governmental proceedings pending or, to the Company’s knowledge, threatened to which the Company or any of its subsidiaries or any of their respective officers or directors is a party or to which any of the properties of the Company or any of its subsidiaries is subject, where in any such case (i) (A) there is a reasonable possibility that such proceeding will be determined adversely to the Company or such subsidiary and (B) if so determined adversely, could reasonably be expected to result in a judgment, decree, award or order having a Material Adverse Effect or (ii) such proceeding could reasonably be expected to materially impair the Company’s consummation of the transaction contemplated by this Agreement or the compliance by the Company with the terms, conditions and provisions of the Transaction Documents or the Series C Preferred Stock.

 

  2.27  Proceedings; Contracts.

 

The descriptions in the Company’s reports filed with the Commission since October 20, 2004 pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (such reports being referred to herein as the “Exchange Act Reports”) of the legal or governmental proceedings, contracts, leases and other legal documents therein described present fairly the information required to be shown, and there are no legal or governmental proceedings, contracts, leases, or other documents of a character required to be described in the Exchange Act Reports or to be filed as exhibits to the Exchange Act Reports that are not described or filed as required; all agreements between the Company or any of its subsidiaries and third parties expressly referenced in the Exchange Act Reports are legal, valid and binding obligations of the Company or one or more of its subsidiaries, enforceable in accordance with their respective terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general equitable principles, except where the failure of such agreements to be legal, valid and binding could not reasonably be expected to result, individually or in the aggregate, in a

 

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Material Adverse Effect, and, to the knowledge of the Company and the Operating Partnership, no party is in breach or default under any such agreements.

 

  2.28  Investment Company Act.

 

Neither the Company nor any of its subsidiaries is, and after giving effect to the offering and sale of the Series C Preferred Stock and the application of the proceeds thereof, neither the Company nor any of its subsidiaries will be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”), and the rules and regulations promulgated thereunder.

 

  2.29  Actions, Etc.

 

There are no actions, suits, proceedings, inquiries or investigations pending, or to the Company’s knowledge, threatened against the Company or any of its subsidiaries or any of their respective officers or directors or to which the properties, assets or rights of any of such entity is subject, at law or in equity, before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority, arbitral panel or agency which would be reasonably be expected to result in a judgment, decree, award or order having a Material Adverse Effect, or an adverse effect on the consummation of the transactions contemplated by this Agreement.

 

  2.30  Compliance with Environmental Laws.

 

Each of the Company and its subsidiaries (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) has received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

  2.31  Costs of Compliance with Environmental Laws.

 

There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

  2.32  Environmental Audits.

 

The Company has obtained Phase I Environmental Audits with respect to the Company Properties and, except as otherwise disclosed in the Prospectus or as set forth on Schedule 2.32 attached hereto and except to an extent that would not, individually or in the

 

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aggregate, reasonably be expected to result in a Material Adverse Effect: (i) the Company has not received any notice of, and has no knowledge of, any occurrence or circumstance which, with notice or passage of time or both, would give rise to a claim under or pursuant to any U.S. federal, state or local environmental statute or regulation or under common law, pertaining to Hazardous Materials (as hereinafter defined) on or originating from any of the Company Property or arising out of the conduct of the Company, including without limitation a claim under or pursuant to any Environmental Statute (as hereinafter defined); and (ii) neither the Company Property is included nor, to the Company’s knowledge, is proposed for inclusion on the National Priorities List issued pursuant to CERCLA (as hereinafter defined) by United States Environmental Protection Agency or, to the Company’s knowledge, proposed for inclusion on any similar list or inventory issued pursuant to any other Environmental Statute or issued by any other Governmental Authority (as hereinafter defined).

 

As used herein, “Hazardous Materials” shall include, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, toxic substances, or related materials, asbestos or any hazardous material as defined by any U.S. federal, state or local environmental law, ordinance, rule or regulation including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601-9675 (“CERCLA”), the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sections 1801-1819, the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sections 6901-6992K, the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001-11050, the Toxic Substances Control Act, 15 U.S.C. Sections 2601-2671, the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136-136y, the Clean Air Act, 42 U.S.C. Sections 7401-7642, the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. Sections 1251-1387, the Safe Drinking Water Act, 42 U.S.C. Sections 300f-330j-26, and the Occupational Safety and Health Act, 29 U.S.C. Sections 651-678, a


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