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AGREEMENT AND PLAN OF MERGER
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dated as of January 3, 1998
by and among
LA QUINTA INNS, INC.
a Texas corporation,
MEDITRUST CORPORATION
a Delaware corporation,
and
MEDITRUST OPERATING COMPANY
a Delaware corporation
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TABLE OF CONTENTS
I. THE MERGER
1.01 The Merger................................................2
1.02 Closing...................................................2
1.03 Effective Time............................................2
1.04 Effects of the Merger.....................................2
1.05 Certificate of Incorporation and Bylaws...................2
1.06 Boards, Committees and Officers...........................2
1.07 Subscription Agreement....................................3
1.08 Subscribed Shares.........................................3
1.09 Reservation of Right to Revise Transaction................3
1.10 Distribution of Earnings and Profits......................4
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.01 Effect on Capital Stock...................................4
2.02 Exchange of Certificates..................................7
2.03 Company Stock Plans......................................11
III. REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company............13
3.02 Representations and Warranties of RECO and OPCO..........25
IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01 Conduct of Business......................................38
4.02 No Solicitation..........................................43
4.03 The Company's Accumulated and Current Earnings
and Profits............................................44
V. ADDITIONAL COVENANTS
5.01 Preparation of the Form S-4 and the Joint Proxy Statement;
Shareholders Meetings..................................45
5.02 Access to Information; Confidentiality...................46
5.03 Regulatory Filings.......................................46
5.04 Reasonable Efforts and Cooperation.......................47
5.05 Employee Benefit Matters.................................48
5.06 Fees and Expenses........................................49
5.07 Public Announcements.....................................52
5.08 Affiliates; Etc..........................................52
5.09 Listing of Paired Shares. ..............................53
(i)
5.10 Shareholder Litigation...................................53
5.11 Tax Treatment............................................53
5.12 Indemnification, Exculpation and Insurance...............53
5.13 Ownership Restrictions...................................54
5.14 Termination of Stock Purchase Plan.......................54
5.15 Private Letter Ruling....................................54
5.16 Reorganization...........................................55
5.17 Retirement of Debt.......................................55
5.18 Consents.................................................56
VI. CONDITIONS PRECEDENT
6.01 Conditions to Each Party's Obligation
To Effect the Merger...................................56
6.02 Conditions to Obligations of RECO and OPCO...............57
6.03 Conditions to Obligation of the Company..................58
6.04 Frustration of Closing Conditions........................59
VII. TERMINATION, AMENDMENT AND WAIVER
7.01 Termination..............................................59
7.02 Effect of Termination....................................60
7.03 Amendment................................................60
7.04 Extension; Waiver........................................61
7.05 Procedure for Termination, Amendment,
Extension or Waiver....................................61
VIII. GENERAL PROVISIONS
8.01 Nonsurvival of Representations and Warranties............61
8.02 Notices..................................................61
8.03 Certain Definitions......................................62
8.04 Interpretation...........................................63
8.05 Counterparts.............................................63
8.06 Entire Agreement; No Third-Party Beneficiaries...........63
8.07 Governing Law............................................64
8.08 Assignment...............................................64
8.09 Enforcement..............................................64
(ii)
INDEX OF DEFINED TERMS
1984 Option Plan........................................................2.03(a)
Adjusted E&P Distribution...............................................2.01(d)
Affected Employees......................................................5.05(b)
Alternative Transaction.................................................5.06(b)
Applicable Amount.......................................................2.03(d)
Articles of Merger.........................................................1.03
Assumed Option..........................................................2.03(c)
Awards..................................................................2.03(a)
Benefit Plans...........................................................3.02(a)
Cash Consideration......................................................2.01(c)
Certificate.............................................................2.01(b)
Closing....................................................................1.02
Closing Date...............................................................1.02
Code...................................................................Preamble
Company................................................................Preamble
Company Benefit Plans...................................................3.01(p)
Company Common Stock...................................................Preamble
Company MAE.............................................................3.01(a)
Company/OPCO Subscription Agreement........................................1.07
Company Properties......................................................3.01(q)
Company SEC Documents...................................................3.01(e)
Company Shareholder Approval............................................3.01(i)
Company Shareholder Meeting.............................................5.01(b)
Company Stock Options...................................................3.01(c)
Company Stock Plans.....................................................2.03(a)
Company Takeover Proposal..................................................4.02
Company Termination Fee.................................................5.06(b)
Development Properties..................................................4.01(a)
DGCL.......................................................................1.01
DOJ.....................................................................5.03(a)
E&P.....................................................................3.01(o)
E&P Distribution...........................................................1.10
Effective Time.............................................................1.03
Electing Share..........................................................2.01(c)
Election Deadline.......................................................2.10(e)
Encumbrances............................................................3.01(q)
Environmental Laws......................................................3.01(e)
Equity Participation Plan...............................................2.03(a)
ERISA...................................................................3.01(p)
Escrow Agent............................................................5.06(b)
Escrow Agreement........................................................5.06(b)
(iii)
Excess Shares...........................................................2.02(e)
Exchange Act...............................................................3.01
Exchange Agent..........................................................2.02(a)
Exchange Fund...........................................................2.02(a)
Exchange Ratio..........................................................2.01(d)
Form of Election........................................................2.01(e)
Form S-4................................................................3.01(f)
Former Employees........................................................5.05(c)
FTC.....................................................................5.03(a)
Governmental Entity.....................................................3.01(d)
Hazardous Materials.....................................................3.01(v)
HSR Act.................................................................3.01(d)
Incentive Plan Award....................................................2.03(a)
Incurrence..............................................................4.01(b)
Intellectual Property Rights...........................................3.01 (w)
IRS.....................................................................3.01(o)
Joint Proxy Statement...................................................3.01(d)
Law.....................................................................3.01(d)
Liens...................................................................3.01(b)
Maximum Cash Consideration Per Share......................................01(c)
Maximum Cash Shares.......................................................01(f)
Measurement Date..........................................................01(d)
Meeting Price Date........................................................01(d)
Merger Consideration......................................................01(d)
Merger.................................................................Preamble
▇▇▇▇▇▇▇ ▇▇▇▇▇...........................................................3.01(k)
Non-Electing Share......................................................2.01(d)
NYSE...................................................................Preamble
OPCO...................................................................Preamble
OPCO Common Stock......................................................Preamble
OPCO Preferred Stock....................................................3.02(c)
OPCO Series Stock.......................................................3.02(c)
Option..................................................................2.03(a)
Order...................................................................3.01(d)
Other Interests.........................................................3.01(r)
Paired Shares..........................................................Preamble
Principle Shareholders.................................................Preamble
Private Transaction.....................................................5.06(b)
Property Restrictions...................................................3.01(q)
REA Agreement...........................................................3.01(q)
RECO...................................................................Preamble
RECO Common Stock......................................................Preamble
RECO Companies.........................................................Preamble
RECO Disclosure Schedules..................................................3.02
RECO Employee Stock Option..............................................3.02(c)
(iv)
RECO MAE................................................................3.02(a)
RECO/OPCO Shareholder Meetings..........................................5.01(c)
RECO/OPCO Shareholder Approvals.........................................3.02(i)
RECO Owned Properties...................................................3.02(v)
RECO Plans..............................................................5.05(a)
RECO Preferred Stock....................................................3.02(c)
RECO SEC Documents......................................................3.02(e)
RECO Series Stock.......................................................3.02(c)
RECO Stock Plans........................................................3.02(c)
Regular RECO Quarterly Dividends........................................3.02(g)
REIT Requirements......................................................3.02 (a)
Representation Date.....................................................3.01(c)
Restricted Shares.......................................................2.03(a)
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇....................................................3.02(j)
Santa ▇▇▇▇▇................................................................3.02
SEC.....................................................................3.01(d)
Securities Act..........................................................3.01(e)
Shareholders Agreement.................................................Preamble
Shares.....................................................................2.01
Shares Trust............................................................2.02(e)
Significant Environmental Liability.....................................3.01(v)
Stock Consideration.....................................................2.01(d)
Subscribed Shares..........................................................1.07
Surviving Corporation......................................................1.01
Taxes...................................................................3.01(o)
TBCA.......................................................................1.01
Termination Notice......................................................2.01(d)
Third Party.............................................................5.06(b)
Total Cash Consideration................................................2.01(f)
Trading Day.............................................................2.01(d)
(v)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 3, 1998, among La
Quinta Inns, Inc., a Texas corporation (the "Company"), Meditrust Corporation, a
Delaware corporation ("RECO"), and Meditrust Operating Company, a Delaware
corporation ("OPCO" and, together with RECO, the "RECO Companies").
RECITALS
A. The respective Boards of Directors of RECO, OPCO and the Company
have each determined that it is advisable and in the best interests of their
respective stockholders to consummate, and have therefore approved, the business
combination transaction provided for herein in which the Company would merge
with and into RECO, and wherein each issued and outstanding share of Common
Stock, par value $0.10 per share, of the Company ("Company Common Stock") not
owned directly or indirectly by RECO, OPCO or the Company will be converted into
the right to receive the Merger Consideration (as herein defined) on the terms
and subject to the conditions of this Agreement (the "Merger");
B. The parties desire to make certain representations, warranties and
covenants in connection with the Merger and to prescribe various conditions to
the Merger;
C. For federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
D. Contemporaneously with the execution of this Agreement, the
Company, RECO and certain other Persons (such other Persons, collectively, the
"Principal Shareholders") have entered into a Shareholders Agreement (the
"Shareholders Agreement") pursuant to which the Principal Shareholders have
agreed, among other things, to refrain from taking certain actions and RECO,
OPCO and the Principal Shareholders have agreed, among other things, to take
certain actions on the terms and subject to the conditions set forth in the
Shareholders Agreement; and
E. The shares of common stock, par value $.10 per share, of RECO (the
"RECO Common Stock") and the shares of common stock, par value $.10 per share,
of OPCO (the "OPCO Common Stock") are paired and transferable and traded only in
combination as a single unit (the "Paired Shares") on the New York Stock
Exchange (the "NYSE").
NOW, THEREFORE, in consideration of the representations, warranties
and covenants contained in this Agreement, the parties agree as follows:
I. THE MERGER
1.01 The Merger. On the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Texas Business Corporation Act
(the "TBCA") and the Delaware General Corporation Law (the "DGCL"), the Company
will be merged with and into RECO at the Effective Time. Following the Effective
Time (as defined below), RECO will be the surviving corporation in the Merger
(the "Surviving Corporation") and will succeed to and assume all the rights and
obligations of the Company in accordance with the TBCA and the DGCL.
1.02 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which (subject to satisfaction or waiver of the conditions set forth in
Article VI) will be no later than the second business day after satisfaction or
waiver of the conditions set forth in Article VI, unless another time or date is
agreed to by the parties hereto. The Closing will be held at the offices of
▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, Exchange Place, Boston, Massachusetts, unless
another place is agreed to in writing by the parties hereto.
1.03 Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on or after the Closing Date, the parties will file articles
or a certificate of merger or other appropriate documents (the "Articles of
Merger") executed in accordance with the relevant provisions of the TBCA and the
DGCL and will make all other filings or recordings required under the TBCA and
the DGCL in order to effect the Merger. The Merger will become effective at such
time as the Articles of Merger have been duly filed with the Texas Secretary of
State and the Secretary of State of Delaware and the certificate of merger has
been issued by the Texas Secretary of State, or at such subsequent date or time
as RECO and the Company agree and specify in the Articles of Merger (the time
the Merger becomes effective being herein referred to as the "Effective Time").
1.04 Effects of the Merger. The Merger will have the effects set
forth in Article 5.06 of the TBCA and Section 259 of the DGCL.
1.05 Certificate of Incorporation and Bylaws.
(a) The Certificate of Incorporation, as amended, of RECO in effect
immediately prior to the Effective Time will be the certificate of incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by Law (as herein defined).
(b) The Bylaws, as amended, of RECO in effect immediately prior to
the Effective Time will be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable Law.
1.06 Boards, Committees and Officers. The individuals serving as the
members of the Board of Directors, committees of the Board of Directors
(including chairmen thereof) and
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officers of RECO as of the Effective Time will serve as such for the Surviving
Corporation until the earlier of the resignation or removal of any such
individual or until their respective successors are duly elected and qualified,
as the case may be.
1.07 Subscription Agreement. Immediately prior to the Closing, the
Company, OPCO and RECO will enter into a contract in the form previously agreed
to or as such contract may be changed by the parties hereto (the "Company/OPCO
Subscription Agreement") pursuant to which consistent with this Agreement the
Company will pay for, and OPCO will issue directly to the shareholders of the
Company as part of the consideration to be paid to such shareholders in the
Merger, a number of shares (the "Subscribed Shares") of OPCO Common Stock equal
to the number of shares of RECO Common Stock to be issued to shareholders of the
Company pursuant to the Merger; provided, however, that such Company/OPCO
Subscription Agreement may be amended or modified in whole or in part in
connection with any transaction contemplated by Section 1.09 or Section 5.15
hereof.
1.08 Subscribed Shares. The parties acknowledge and agree that the
Subscribed Shares will be issued in accordance with Sections 2.01(d) and (g) to
the shareholders of the Company in connection with the Merger and will be paired
with the RECO Common Stock issued in the Merger and that neither the Company nor
RECO will at any time become a stockholder of OPCO.
1.09 Reservation of Right to Revise Transaction. Notwithstanding
anything to the contrary contained in this Agreement, RECO and OPCO may, in
their sole discretion, but following a good faith consultation with the Company,
at any time prior to the Effective Time, revise the method of effecting the
Merger, which change may include the use of a merger subsidiary or other
acquisition vehicle; provided, however, that (i) any breach of this Agreement
and any inability of the Company to satisfy any condition to the Merger set
forth in Section 6.02 of this Agreement arising solely as a result of such
revised method of effecting the Merger shall not be deemed a breach or a failure
of such condition to the consummation of the Merger, (ii) notwithstanding such
revised method of effecting the Merger, RECO shall continue to remain liable
hereunder for the satisfaction of any of its obligations hereunder that have
been assigned pursuant to this Section 1.09, and (iii) such revised method of
effecting the Merger shall enable the Merger to continue to qualify as, or be
treated as part of, one or more tax-free reorganizations within the meaning of
Section 368(a) of the Code and the RECO Shares to be received by the Company
Shareholders shall be received without recognition of gain or loss; provided,
however, that the sale of any assets by the Company to OPCO, RECO or any of
their respective affiliates which would enable RECO and OPCO to maximize the
economic and tax advantages associated with the paired-share structure,
including without limitation the transactions contemplated by and effected
pursuant to Section 5.15 hereof, shall not be deemed to contravene clause (iii)
of this sentence. The parties hereto agree that they will execute, and will
cause their respective direct and indirect subsidiaries to execute, such
agreements and documents and such amendments to this Agreement and any related
documents as shall be appropriate in order to reflect such revised structure.
3
1.10 Distribution of Earnings and Profits. In the event that all
conditions precedent to the Closing set forth in Article VI have been satisfied,
the Closing shall occur and immediately prior to the Effective Time RECO shall
declare a dividend payable on its Common Stock (which dividend may be declared
contingent upon the consummation of the Merger) in such amount as RECO
determines is necessary as a result of the estimated undistributed earnings and
profits of the Company at the Effective Time (the amount of such declared
dividend per share of RECO Common Stock is hereinafter referred to as the "E&P
Distribution"). The record date for such E&P Distribution shall be no sooner
than fifteen (15) days and no later than forty-five (45) days after the
Effective Time and the payment date for such E&P Distribution shall be no later
than fifteen (15) days after such record date.
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.01 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Company Common Stock outstanding immediately prior to the Effective Time
("Shares"):
(a) Cancellation of Treasury Stock and RECO-Owned Stock. Each Share
that is owned by the Company or by any wholly owned Subsidiary of the Company,
or by RECO or OPCO or any wholly owned Subsidiary of either of them, will
automatically be canceled and retired and will cease to exist, and no
consideration will be delivered in exchange therefor.
(b) Cancellation of Other Shares. Each Share, other than those
described in Section 2.01(a), will no longer be outstanding and will
automatically be canceled and retired and cease to exist and each holder of a
certificate representing any such Share (a "Certificate") will cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration and any additional cash in lieu of fractional Paired Shares to be
issued or paid in consideration therefor upon surrender of such Certificate in
accordance with Section 2.02, without interest.
(c) Electing Shares. Subject to Sections 2.01(a), (f) and (g), each
Share with respect to which a Form of Election to receive cash has been properly
made and not revoked pursuant to Section 2.01(e) will, at the Effective Time, be
converted into, and the holder thereof will be entitled to receive therefor,
$26.00 in cash (the "Maximum Cash Consideration Per Share"). The cash
consideration payable with respect to each Electing Share is hereinafter
referred to as the "Cash Consideration," and each Share with respect to which an
election to be converted into cash is duly made as herein provided is herein
referred to as an "Electing Share."
(d) Non-Electing Shares. Each Share other than (1) an Electing Share,
and (2) a Share canceled in accordance with Section 2.01(a), is herein referred
to as a "Non-Electing Share." Subject to Section 2.01(f), each Non-Electing
Share and each Electing Share described
4
in Section 2.01(g)(ii) will at the Effective Time be converted into the right to
receive the number of Paired Shares (the "Exchange Ratio") determined as
follows:
(i) If the Meeting Date Price is greater
than $45.60, then the Exchange Ratio
will equal the quotient of (a) $28.36
minus the Adjusted E&P Distribution
divided by (b) the Meeting Date Price.
(ii) If the Meeting Date Price is less than
or equal to $45.60 but greater than or
equal to $41.80, then the Exchange
Ratio will equal (a) .6220 minus (b)
the quotient of the Adjusted E&P
Distribution divided by the Meeting
Date Price.
(iii) If the Meeting Date Price is less than
$41.80 but greater than or equal to
$34.20, then the Exchange Ratio will
equal the quotient of (a) $26.00 minus
the Adjusted E&P Distribution divided
by (b) the Meeting Date Price.
(iv) If the Meeting Date Price is less than
$34.20 but greater than or equal to
$30.40, then the Exchange Ratio will
equal (a) .7602 minus (b) the quotient
of the Adjusted E&P Distribution
divided by the Meeting Date Price.
(v) If the Meeting Date Price is less than
$30.40, then the Company will have the
right to terminate this Agreement
pursuant to Section 7.01(g) by giving
written notice (the "Termination
Notice") of its election to do so to
RECO prior to 5:00 p.m., Boston time,
on the second Trading Day after the
Measurement Date; provided, however,
that the Termination Notice will be
deemed to be rescinded and will have
no effect if, prior to 5:00 p.m.,
Boston time, on the second Trading Day
following the date of delivery by the
Company to RECO of such Termination
Notice, RECO has given the Company
written notice that it has exercised
its right to make the Exchange Ratio
equal to (A) the quotient of $23.11
divided by the Meeting Date Price
minus (B) the quotient of the Adjusted
E&P Distribution divided by the
Meeting Date Price. If this
subparagraph (v) applies, but the
Company fails to give the Termination
Notice by the time specified above,
the Exchange Ratio will equal (a)
.7602 minus (b) the quotient of the
Adjusted E&P Distribution divided by
the Meeting Date Price.
(vi) Notwithstanding anything to the
contrary contained in Section
2.01(d)(v) above, if the Meeting Date
Price is less than $28.50, the Company
will have the right to terminate this
Agreement
5
pursuant to Section 7.01(g) by giving
Termination Notice of its election to
do so to RECO prior to 5:00 p.m.,
Boston time, on the second Trading Day
after the Measurement Date. If this
subparagraph (vi) applies, but the
Company fails to give the Termination
Notice by the time specified above,
the Exchange Ratio will equal (a)
.7602 minus (b) the quotient of the
Adjusted E&P Distribution divided by
the Meeting Date Price.
In determining the Exchange Ratio as provided above, the final number
will be rounded to three decimal places, rounding up from .0005. In the event of
any stock dividend or other stock distribution or a subdivision, combination or
modification of RECO Common Stock or OPCO Common Stock with a record date after
the date hereof and prior to the Effective Time, the Exchange Ratio will be
equitably adjusted. For purposes of this Agreement, (a) the term "Meeting Date
Price" means the average per share closing price for a Paired Share as reported
on the NYSE Transactions Tape (as reported in the Wall Street Journal or, if not
reported thereby, by another authoritative source) for twenty (20) Trading Days
randomly selected by a neutral independent accounting firm appointed by mutual
agreement of the RECO Companies and the Company from the thirty (30) consecutive
Trading Day period ending on the Trading Day (the "Measurement Date")
immediately preceding the seventh Trading Day prior to the date on which the
meeting of the Company's shareholders pursuant to Section 5.01(b) hereof is to
be initially convened; (b) the term "Stock Consideration" means the
consideration described in the second sentence of this Section 2.01(d); (c) the
term "Merger Consideration" means the Cash Consideration and Stock
Consideration; (d) the term "Trading Day" means a day on which the NYSE is open
for trading; and (e) the term "Adjusted E&P Distribution" means the product of
the Exchange Ratio multiplied by the E&P Distribution.
(e) Form of Election. The Company will mail a form of election ("Form
of Election") to all holders of record of Shares as of the record date of the
Company Shareholder Meeting. In addition, the Company will use all reasonable
efforts to make the Form of Election and Joint Proxy Statement available to all
persons who become shareholders of the Company during the period between such
record date and the third Trading Day prior to the date of the initial convening
of the Company Shareholder Meeting. Any election to receive Cash Consideration
contemplated by Section 2.01(c) hereof shall have been properly made only if the
Exchange Agent has received at its designated office or offices, by 5:00 p.m.,
Boston time, on the Trading Day which is seven trading days prior to the date of
the initial convening of the Company Shareholder Meeting (such time is
hereinafter referred to as the "Election Deadline"), a Form of Election properly
completed and accompanied by certificates representing the Shares to which such
Form of Election relates, duly endorsed in blank or otherwise acceptable for
transfer on the books of the Company (or an appropriate guarantee of delivery),
as set forth in such Form of Election. An election to receive Cash Consideration
may be revoked only by written notice received by the Exchange Agent prior to
the Election Deadline. In addition, all elections to receive Cash Consideration
will automatically be revoked if the Exchange Agent is notified in writing by
RECO and Company that the Merger has been abandoned. If an election to receive
Cash Consideration is so revoked, the Certificates (or guarantees of delivery,
as appropriate) for the Shares to which such election to
6
receive Cash Consideration relates will be promptly returned to the person
submitting the same to the Exchange Agent.
(f) Limitations on Cash Payments. Anything in this Article II to the
contrary notwithstanding, holders of Electing Shares will not be entitled to,
and RECO will not be obligated in implementing Section 2.01(c) to pay, the
Maximum Cash Consideration Per Share in respect of the number of Electing Shares
that exceeds the Maximum Cash Shares. "Maximum Cash Shares" shall mean (A) the
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time multiplied by a percentage equal to the quotient of (i) $6.75
minus the Company E&P Distribution, divided by (ii) $26.00, minus (B) the number
of shares, if any, that RECO elects to purchase from shareholders prior to the
Effective Time pursuant to the Shareholders Agreement. The amount of cash equal
to the Maximum Cash Consideration Per Share times the Maximum Cash Shares is
hereinafter referred to as the "Total Cash Consideration." The "Company E&P
Distribution" shall mean the quotient of (A) (i) the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time minus the
Maximum Cash Shares, multiplied by (ii) the Adjusted E&P Distribution, divided
by (B) the number of shares of Company Common Stock outstanding immediately
prior to the Effective Time.
(g) Proration of Electing Shares. In the event that the aggregate
number of Electing Shares exceeds the Maximum Cash Shares, all Electing Shares
will at the Effective Time be converted into the right to receive Merger
Consideration in the following manner:
(i) The number of Electing Shares covered by each Form of Election to
be converted into the right to receive the Cash Consideration will be determined
by multiplying the number of Electing Shares covered by such Form of Election by
a fraction, the numerator of which is the Maximum Cash Shares and the
denominator of which is the total number of Electing Shares, rounded down to the
nearest whole Share; and
(ii) Each Electing Share not converted into the right to receive the
Cash Consideration in accordance with Section 2.01(g)(i) will be converted into
the right to receive the Stock Consideration and no longer considered to be an
Electing Share.
2.02 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, RECO and OPCO will
enter into an agreement with The First National Bank of Boston, N.A., the
Company's Transfer Agent, or such other bank or trust company as may be
designated by RECO, OPCO and the Company (the "Exchange Agent"), such agreement
to provide that as of the Effective Time (i) RECO will deposit, or will cause to
be deposited, with the Exchange Agent, for the benefit of the holders of Shares,
for exchange in accordance with this Article II, through the Exchange Agent, a
certificate representing the shares of RECO Common Stock issuable pursuant to
Section 2.01 in exchange for outstanding Shares, (ii) RECO will deposit, or will
cause to be deposited, with the Exchange Agent, for the benefit of the holders
of the Shares, for exchange in accordance with this Article II, cash in the
amount of the Total Cash
7
Consideration, and simultaneously, (iii) OPCO will deposit, or will cause to be
deposited, with the Exchange Agent, for exchange in accordance with this Article
II, through the Exchange Agent, a certificate representing the Subscribed
Shares, to be paired with the shares of RECO Common Stock described in clause
(i) above. The certificates for shares of RECO Common Stock and Subscribed
Shares, together with any dividends or distributions with respect thereto with a
record date after the Effective Time, any Excess Shares and any cash (including
cash proceeds from the sale of the Excess Shares) in lieu of any fractional
Paired Shares and Cash Consideration, are hereinafter referred to as the
"Exchange Fund."
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent will mail or otherwise make available to each
holder of record of a Certificate which immediately prior to the Effective Time
represented outstanding Shares converted into the right to receive the Merger
Consideration pursuant to Section 2.01: (i) a letter of transmittal (which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon delivery of the Certificates to the Exchange
Agent and will be in such form and have such other provisions as RECO may
specify consistent with this Agreement) and (ii) instructions for effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
will be entitled to receive in exchange therefor the Merger Consideration and
cash, if any, which such holder has the right to receive pursuant to the
provisions of Sections 2.02(c) and (e), and the Certificate so surrendered will
forthwith be canceled. In the event of a transfer of ownership of Shares which
is not registered in the transfer records of the Company, the Merger
Consideration may be issued or paid to a Person other than the Person in whose
name the Certificate so surrendered is registered if such Certificate is
properly endorsed or otherwise in proper form for transfer and the Person
requesting such issuance or payment pays any transfer or other taxes required by
reason of the issuance or payment of the Merger Consideration to a Person other
than the registered holder of such Certificate or establishes to the
satisfaction of RECO that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration which the holder thereof
has the right to receive in respect of such Certificate in the Merger and cash,
if any, pursuant to the provisions of Section 2.02(c) and (e). No interest will
be paid or will accrue on any cash payable to holders of Certificates pursuant
to the provisions of this Article II, but all payments of cash, if any, which
holders have the right to receive pursuant to the provisions of this Article II
will be made in immediately available funds. Certificates surrendered for
exchange by any person who is an "affiliate" of the Company for purposes of Rule
145, as such rule may be amended from time to time, under the Securities Act,
will not be exchanged until RECO has received an agreement substantially in the
form of Schedule 5.08(a) from such person.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to RECO Common Stock or OPCO Common Stock with
a record date after the Effective Time and no cash payment in lieu of fractional
shares will be
8
paid pursuant to Section 2.02(e) to the holder of any unsurrendered Certificate
with respect to the Paired Shares represented thereby, and all such dividends,
other distributions and cash in lieu of fractional Paired Shares will be paid by
RECO or OPCO to the Exchange Agent promptly after the Effective Time and will be
included in the Exchange Fund, in each case in accordance with this Article II.
Subject to Section 2.02(f) and 2.02(g) hereof and to the effect of applicable
escheat or similar Laws, following surrender of any Certificate in accordance
herewith there will be paid to the holder of the certificates representing whole
Paired Shares issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time and which have been theretofore paid by RECO or
OPCO with respect to such whole Paired Shares and the amount of any cash payable
in lieu of fractional Paired Shares to which such holder is entitled pursuant to
Section 2.02(e) and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole Paired Shares.
(d) No Further Ownership Rights in Shares. All Paired Shares issued
and all cash paid upon the surrender for exchange of Certificates in accordance
with the terms of this Article II will be deemed to have been issued and paid in
full satisfaction of all rights pertaining to the Shares theretofore represented
by such Certificates. If, after the Effective Time, Certificates are presented
to RECO, the Surviving Corporation or the Exchange Agent for any reason, they
will be canceled and exchanged as provided in this Article II.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional Paired Shares
will be issued upon the surrender for exchange of Certificates, no dividend or
distribution of RECO will relate to such fractional share interests and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of RECO.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (A) the number of whole Paired
Shares delivered to the Exchange Agent by RECO and OPCO pursuant to Section
2.02(a) over (B) the aggregate number of whole Paired Shares to be distributed
to holders of Shares pursuant to Section 2.02(b) (such excess being herein
called the "Excess Shares"). Subject to Section 2.02(e)(iv), following the
Effective Time, the Exchange Agent will sell the Excess Shares, all in the
manner provided in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE through one or more member firms of the NYSE and will be
executed in round lots to the extent practicable. The Exchange Agent will use
all reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the prior holders of Shares, the Exchange Agent will
hold such
9
proceeds in trust for such holders entitled thereto (the "Shares Trust"). The
Surviving Corporation will pay out of the Shares Trust all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent incurred in connection with such sale of the
Excess Shares. The Exchange Agent will determine the portion of the Shares Trust
to which each holder of Shares is entitled, if any, by multiplying the amount of
the aggregate net proceeds comprising the Shares Trust by a fraction, the
numerator of which is the amount of the fractional share interest to which such
holder of Shares is entitled (after taking into account all Shares held at the
Effective Time by such holder) and the denominator of which is the aggregate
amount of fractional share interests to which all holders of Shares are
entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii),
RECO may elect at its option, exercised prior to the Effective Time, in lieu of
the issuance and sale of Excess Shares and the making of the payments
hereinabove contemplated, to cause to be paid to each holder of Shares an amount
in cash equal to the product obtained by multiplying (A) the fractional share
interest to which such holder (after taking into account all Shares held at the
Effective Time by such holder) would otherwise be entitled by (B) the average
closing price for a Paired Share as reported on the NYSE Transactions Tape (as
reported in the Wall Street Journal, or, if not reported thereby, any other
authoritative source) over the 20 consecutive Trading Day period ending on the
Measurement Date and, in such case, all references herein to the cash proceeds
of the sale of the Excess Shares and similar references will be deemed to mean
and refer to the payments calculated as set forth in this Section 2.02(e)(iv).
In no event will RECO be required to cause such payment to be funded prior to
the Effective Time.
(v) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares with respect to any fractional
share interests, the Exchange Agent will make available such amounts to such
holders of Shares subject to and in accordance with the terms of Section
2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six months
after the Effective Time will be delivered to RECO and OPCO, in accordance with
RECO's instructions, upon demand, and any holders of the Certificates who have
not theretofore complied with this Article II shall thereafter submit their
unsurrendered Certificates to, and look only to, RECO as a general unsecured
creditor thereof for payment of their claim for Merger Consideration, any cash
in lieu of fractional Paired Shares and any dividends or distributions with
respect to Paired Shares, in each case, without interest thereon.
(g) No Liability. None of RECO, OPCO, the Company or the Exchange
Agent will be liable to any Person in respect of any Paired Shares (or dividends
or distributions with respect thereto) or cash from the Exchange Fund delivered
to a public official or any Governmental Entity (as herein defined) pursuant to
any applicable abandoned property, escheat or similar Law. If any Certificate
has not been surrendered prior to one year after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration,
10
any cash in lieu of fractional Paired Shares or any dividends or distributions
payable to the holder of such Certificate would otherwise escheat to or become
the property of any Governmental Entity), any such Merger Consideration, cash,
dividends or distributions in respect of such Certificate will become the
property of the Surviving Corporation, free and clear of all claims or interest
of any Person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent will invest any
cash included in the Exchange Fund in one or more bank accounts or in
high-quality, short-term investments, as directed by RECO, on a daily basis. Any
interest and other income resulting from such investments will be paid to RECO
(or OPCO to the extent of OPCO's cash contributions, if any, to the Exchange
Fund).
(i) Lost Certificates. If any Certificate is lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration and, if applicable, any cash in lieu of fractional shares, and
unpaid dividends and distributions on Paired Shares or deliverable in respect
thereof, pursuant to this Agreement.
(j) Exchange of Certificates for Cash Consideration. Without limiting
the generality or effect of any other provision hereof, the Exchange Agent will
have discretion to determine whether or not elections to receive Cash
Consideration have been properly made or revoked pursuant to this Article II
with respect to Shares and when elections and revocations were received by it.
If the Exchange Agent determines that any election to receive Cash Consideration
was not properly made with respect to Shares, absent manifest error, such Shares
will be treated by the Exchange Agent as, and for all purposes of this Agreement
will be deemed to be, Non-Electing Shares at the Effective Time, and such Shares
will be converted in the Merger into Stock Consideration pursuant to Section
2.01(d). The Exchange Agent will also make computations as to the allocation,
proration and equitable adjustments contemplated by this Article II and any such
computation will be, absent manifest error, conclusive and binding on the
holders of Electing Shares pursuant to this Article II. The Exchange Agent may,
with the mutual agreement of RECO and the Company, make such equitable changes
in the procedures set forth herein for the implementation of the cash elections
provided for in this Article II as it determines to be necessary or desirable to
effect fully such elections.
2.03 Company Stock Plans.
(a) The Company will take all actions necessary to provide that, upon
the Effective Time, (i) each outstanding option (each, an "Option") to purchase
Company Common Stock under the Company's Amended and Restated 1984 Stock Option
Plan (the "1984 Option Plan"), the Company's 1997 Equity Participation Plan, as
amended (the "Equity Participation Plan") or the Company's Non-Qualified Stock
Option Plan of ▇▇▇▇ ▇. ▇▇▇▇ (the "Non-Qualified Stock Option Plan" and, together
with the Equity Participation Plan and the
11
1984 Option Plan, the "Company Stock Plans"), (ii) each outstanding stock
appreciation right, performance award or other award granted under the Company's
Equity Participation Plan (each, an "Incentive Plan Award"), and (iii) each
outstanding share of restricted Company Common Stock issued under the Company's
Equity Participation Plan ("Restricted Shares" and, together with Options and
Incentive Plan Awards, "Awards"), whether or not then exercisable or vested, all
of which Awards are listed in Section 2.03(a) of the Company Disclosure Schedule
(as defined in Section 3.01), will become fully exercisable and vested.
(b) As soon as practicable after the date hereof, the Company will
deliver to holders of Awards appropriate notices setting forth such holders'
rights pursuant to the respective Company Stock Plans, the agreements evidencing
the grants of such Awards and this Agreement. Holders of Options identified on
Section 2.03(b) of the Company Disclosure Schedule will be entitled, at their
election, to have any or all of their Options (i) assumed by RECO pursuant to
and in accordance with Section 2.03(c) or (ii) canceled or repurchased pursuant
to and in accordance with Section 2.03(d). All other Options will be canceled or
repurchased pursuant to and in accordance with Section 2.03(d).
(c) At the Effective Time, the Company's obligations with respect to
each Option for which the holder thereof has elected pursuant to the second
sentence of Section 2.03(b) to be assumed by RECO (an "Assumed Option"), will be
assumed by RECO. The Assumed Options will continue to have, and be subject to,
the same terms and conditions as set forth in the Company Stock Plans (as the
case may be) and related option or other grant agreements (as in effect
immediately prior to the Effective Time) pursuant to which the Assumed Options
were issued, provided that (i) all references to the Company will be deemed to
be references to RECO, and all references to the Company Common Stock will be
deemed to be references to Paired Shares, (ii) each Assumed Option will be
exercisable for that number of whole Paired Shares equal to the product of the
number of shares of the Company Common Stock covered by the Assumed Option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounded to the nearest whole number of Paired Shares, and (iii) the exercise
price per share of Paired Shares under each Assumed Option will be equal to the
exercise price per share of the Company Common Stock under the Assumed Option
immediately prior to the Effective Time divided by the Exchange Ratio, rounded
to the nearest cent. Pursuant to this Agreement and in accordance with the
Subscription Agreement, RECO will (A) reserve for issuance or hold the number of
Paired Shares that will become issuable upon the exercise of such Assumed
Options pursuant to this Section 2.03(c) and (B) promptly after the Effective
Time issue to each holder of an outstanding Assumed Option a document evidencing
the assumption by RECO of the Company's obligations with respect thereto under
this Section 2.03(c).
(d) Immediately prior to the Effective Time, each Option which is not
an Assumed Option will be canceled or repurchased, as appropriate, and in
consideration of such cancellation or repurchase, as the case may be, the
Company will pay to the holder of each such Option an amount in respect thereof
equal to the product of (i) the Applicable Amount, multiplied by (ii) the number
of shares of Company Common Stock subject thereto (such
12
payment to be net of applicable withholding taxes). The term "Applicable Amount"
means the excess of (1) $26.00 over (2) the exercise price of each such Option.
(e) At any time prior to the Effective Time, each Option that will
not be assumed, canceled, or repurchased may be exercised in accordance with the
terms of the Company Stock Plans (as the case may be), provided, however, that
the Company, unless contractually obligated to do so, shall not (i) allow a
cashless exercise of any such Option, or (ii) accept from the holder of any such
Option, a note or other instrument evidencing debt in exchange for the exercise
price of such Option.
III. REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company. Except as set
forth in the Company SEC Documents (as herein defined) which have been filed
with the SEC subsequent to December 31, 1996 pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), exclusive of any exhibits thereto
and information incorporated therein by reference, the Company represents and
warrants to RECO and OPCO as follows:
(a) Organization, Standing and Corporate Power. The Company and each
of its Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the Laws of the jurisdiction in which it is
organized and has all the requisite corporate, partnership or limited liability
company power, as the case may be, and authority to own, operate, lease and
encumber its properties and carry on its business as now being conducted. The
Company and each of its Significant Subsidiaries is duly qualified or licensed
to do business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions in which the failure to be
so qualified or licensed or to be in good standing individually or in the
aggregate could not be reasonably expected to have a material adverse effect on
the business, assets, prospects, financial condition or results of operations of
the Company and each of its Subsidiaries, taken as a whole, or on the ability of
the Company to perform any of its obligations under this Agreement (any such
effect, a "Company MAE"). The Company has delivered to RECO or its counsel prior
to the execution of this Agreement true, complete and correct copies of its
articles of incorporation and bylaws, as well as the organizational documents
and partnership and joint venture agreements of each of its Subsidiaries, in
each case as amended to date.
(b) Subsidiaries. Section 3.01(b) of the Company Disclosure Schedule
contains a list of all of the Significant Subsidiaries of the Company as of the
date hereof. Except as set forth on Section 3.01(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of, or other equity
interests in, each such Subsidiary have been validly issued and are fully paid
and nonassessable and are owned directly or indirectly by the Company, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens").
13
(c) Capital Structure. The authorized capital stock of the Company
consists of 200 Million Shares. At the close of business on the last business
day immediately preceding the date hereof (the "Representation Date"), (i)
77,137,118 Shares were issued and outstanding, (ii) 8,030,820 Shares were held
by the Company in its treasury, and (iii) 11,967,960 Shares were reserved for
issuance pursuant to the Company Stock Plans. Except as set forth above, at the
close of business on the Representation Date, no shares of capital stock or
other voting securities of the Company were issued, reserved for issuance or
outstanding. At the close of business on the Representation Date, there were no
outstanding stock options, stock appreciation rights or rights (other than
employee stock option or other rights ("Company Stock Options") to purchase or
receive Company Common Stock granted under the Company Stock Plans) to receive
shares of Company Common Stock on a deferred basis granted under the Company
Stock Plans or otherwise. Section 3.01(c) of the Company Disclosure Schedule
sets forth a complete and correct list, as of the Representation Date, of the
number of shares of Company Common Stock subject to Company Stock Options. All
outstanding shares of capital stock of the Company are, and all shares which may
be issued will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights. As of the close of
business on the Representation Date, there were no bonds, debentures, notes,
other indebtedness or securities 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 shareholders of the Company may vote. Except as set forth
above, as of the close of business on the Representation Date, there were no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other voting
securities of the Company or of any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Except for agreements entered into with respect to the Company
Stock Plans and except as set forth on Section 3.01(c) of the Company Disclosure
Schedule, as of the close of business on the Representation Date, there were no
outstanding contractual obligations of the Company or any of its Subsidiaries to
issue, repurchase, redeem, exchange or otherwise acquire, or to register (under
the federal or any state securities laws) for resale, any shares of capital
stock of the Company or any of its Subsidiaries. As of the close of business on
the Representation Date, there were no outstanding contractual obligations of
the Company to vote or to dispose of any shares of the capital stock of any of
its Subsidiaries.
(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement and the Shareholders
Agreement, and, subject to the Company Shareholder Approval, to consummate the
Merger and to perform all of the Company's obligations under this Agreement and
the Shareholders Agreement. Prior to the date hereof, the Board of Directors of
the Company unanimously approved this Agreement, the Merger and the other
transactions contemplated by this Agreement to which the Company is or will be a
party as well as the Shareholders Agreement and the transactions contemplated
14
thereby and resolved to recommend that the holders of Company Common Stock adopt
this Agreement. The execution and delivery of this Agreement and the
Shareholders Agreement by the Company and the performance by the Company of its
obligations contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, subject in the case of
this Agreement, to Company Shareholder Approval. Each of this Agreement and the
Shareholders Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. Except as set forth in Section
3.01(d) of the Company Disclosure Schedule and in Sections 1.09, 5.15 and 5.16
hereof, the execution and delivery of this Agreement and the Shareholders
Agreement does not, and the consummation of the transactions contemplated hereby
and thereby and compliance with the provisions hereof and thereof will not,
conflict with, breach or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any of its Subsidiaries under, (i) assuming Company
Shareholder Approval in the case of this Agreement, the articles of
incorporation or by-laws of the Company or the comparable organizational
documents of any of its Subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
Subsidiaries or their respective properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order or decree ("Order"), or statute, law, ordinance, rule or
regulation ("Law") applicable to the Company or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, breaches, violations, defaults, rights, losses or
Liens that individually or in the aggregate could not be reasonably expected to
have a Company MAE. No Order, consent, approval or authorization of, or
registration, declaration or filing with, any federal, state, local or foreign
government or any court, administrative or regulatory agency or commission or
other governmental authority, agency or instrumentality (a "Governmental
Entity") is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the Merger or the performance
of all of the Company's obligations under this Agreement except for (1) the
filing of a premerger notification and report form by the Company under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (2) the filing with the Securities and Exchange Commission (the "SEC") of
(A) a proxy statement relating to the Company Shareholder Meeting (such proxy
statement, together with the proxy statement relating to the RECO/OPCO
Shareholder Meetings, in each case as amended or supplemented from time to time,
the "Joint Proxy Statement") and (B) such reports under the Exchange Act, as may
be required in connection with this Agreement and the transactions contemplated
hereby; (3) the filing of Articles of Merger with the Secretary of State of
Texas and appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business and such filings with Governmental
Entities to satisfy the applicable requirements of state securities or "blue
sky" laws; (4) the filing of a Certificate of Merger with the Secretary of State
of Delaware; and (5) such consents, approvals, Orders, authorizations,
registrations, declarations or filings, the failure of which to be made or
15
obtained, individually or in the aggregate, could not reasonably be expected to
have a Company MAE. The Company does not maintain, nor is it party to, nor is it
currently contemplating adopting, a shareholder rights plan or similar
arrangement customarily known as a "poison pill."
(e) SEC Documents; Undisclosed Liabilities. The Company has timely
filed all required reports, schedules, forms, statements and other documents
with the SEC since December 31, 1996 (the "Company SEC Documents"). As of their
respective dates, the Company SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Company SEC Documents, and
none of the Company SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any Company SEC Document has been revised or
superseded by a later Company Filed SEC Document, as of the date hereof, none of
the Company SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Company SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to year-end adjustments). Except (i) as reflected
in such financial statements or in the notes thereto, (ii) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, and (iii) for liabilities and obligations incurred since September 30,
1997 in the ordinary course of business consistent with past practice, neither
the Company nor any of its Subsidiaries has any liabilities or obligations of
any nature (whether accrued, absolute, known or unknown, asserted or unasserted,
contingent or otherwise), including liabilities arising under any Environmental
Laws (as herein defined), which are required by generally accepted accounting
principles to be reflected in a consolidated balance sheet of the Company and
its consolidated Subsidiaries and which, individually or in the aggregate, could
reasonably be expected to have a Company MAE.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by reference
in (i) the registration statement on Form S-4 to be filed with the SEC by RECO
in connection with the issuance of RECO Common Stock in the Merger (the "Form
S-4"), at the time the Form S-4 is filed with the SEC or at the time it becomes
effective under the Securities Act, or (ii) the Joint
16
Proxy Statement, at the date it is first mailed to the Company's shareholders or
at the time of the Company Shareholder Meeting, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Joint Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on information supplied by RECO
specifically for inclusion or incorporation by reference in the Joint Proxy
Statement or contained in any RECO SEC Documents (as herein defined)
incorporated by reference in the Form S-4 or the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as disclosed in
the Company SEC Documents filed and publicly available prior to the date of this
Agreement, (ii) for the transactions provided for herein or permitted by Section
4.01(a), (iii) for liabilities incurred in connection with or as a result of
this Agreement, and (iv) as set forth on Section 3.01(g) of the Company
Disclosure Schedule, since September 30, 1997, the Company has conducted its
business only in the ordinary course, and there has not been (1) any Company
MAE, (2) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of the
Company stock, (3) any split, combination or reclassification of any of the
Company's capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
the Company's capital stock, (4) any granting by the Company or any of its
Subsidiaries to any director, executive officer or other key employee of the
Company of any increase in compensation, (5) any granting by the Company or any
of its Subsidiaries to any such director, executive officer or key employee of
any increase in severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of the date of the
most recent financial statements included in the Company SEC Documents, (6) any
entry by the Company or any of its Subsidiaries into any employment, severance
or termination agreement with any such director, executive officer or key
employee, or (7) except insofar as may be required by a change in generally
accepted accounting principles, any change in accounting methods, principles or
practices by the Company. For purposes of this Agreement, "key employee" means
any employee (other than an employee whose responsibilities relate principally
to a single hotel) whose current salary and targeted bonus exceeds $100,000 per
annum. Section 3.01(g) of the Company Disclosure Schedule contains a true and
complete list of all agreements or plans providing for termination or severance
pay to any key employee.
(h) Litigation. Except as described in the Company SEC Documents
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against the Company pending or, to the Company's
Knowledge, threatened, which, individually or in the aggregate, could reasonably
be expected to have a Company MAE.
17
(i) Voting Requirements. The affirmative vote of two-thirds of the
outstanding Shares entitled to vote thereon at the Company Shareholder Meeting,
which shall be a duly convened meeting at which a quorum was present and acting
throughout (the "Company Shareholder Approval"), to adopt this Agreement is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
hereby.
(j) State Takeover Statutes. The Company Board has approved this
Agreement, the Merger, the other transactions contemplated hereby and the
execution of the Shareholders Agreement. Such approval constitutes approval of
the Merger and the other transactions contemplated hereby by the Company Board
under, and the Company Board has taken all action necessary or advisable, so as
to render inoperative with respect to the Merger and the performance of the
Company's obligations contemplated by this Agreement and by the Shareholders
Agreement, the provisions of Article 13.03 of the TBCA. No other takeover
statutes, whether under the laws of Texas or otherwise, are applicable to the
Merger, this Agreement or the transactions contemplated hereby.
(k) Brokers. No broker, investment banker, financial advisor or other
Person, other ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co. ("▇▇▇▇▇▇▇ ▇▇▇▇▇"), the fees and expenses
of which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has furnished to RECO true and complete
copies of all agreements under which any such fees or expenses are payable and
all indemnification and other agreements related to the engagement of the
Persons to whom such fees are payable.
(l) Opinion of Financial Advisor. The Company has received the
opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ to the effect that, as of the date thereof, the
Consideration (as defined in such opinion) to be received by the holders of
Company Shares pursuant to the Merger and the E&P Distribution is fair to the
Company's shareholders from a financial point of view.
(m) Ownership of Paired Shares. Neither the Company nor, to its
Knowledge, any of its subsidiaries, directors, or executive officers or other
affiliates beneficially owns (as such term is defined in Rule 13d-3 under the
Exchange Act) any Paired Shares.
(n) Compliance with Laws; Permits. Except as set forth in Section
3.01(n) of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is in violation of any Order or any Law applicable to the Company
or any of its Subsidiaries or any of their respective properties or assets,
except such violations as could not reasonably be expected to have a Company
MAE. Except as set forth in Section 3.01(n) of the Company Disclosure Schedule,
the Company and its Subsidiaries have obtained all material licenses, permits
and other authorizations and have taken all actions required by applicable Law
or governmental regulations in connection with their business as now or
previously conducted where the failure to obtain any such license, permit or
authorization or to take any such action,
18
individually or in the aggregate, could reasonably be expected to have a Company
MAE. None of such licenses, permits or authorizations shall be terminated or
canceled as a result of the consummation of the transactions contemplated by
this Agreement, except for those licenses, permits or authorizations the lack of
which could not reasonably be expected to have a Company MAE.
(o) Tax Matters. Except as, individually or in the aggregate, could
not be reasonably expected to have a Company MAE (other than with respect to
subsection (vi) below) and except as set forth in Section 3.01(o) of the Company
Disclosure Schedule:
(i) The Company and each of its Subsidiaries has paid or caused to be
paid all federal, state, local, foreign and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and real and personal property taxes, whether or not
measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties (collectively, "Taxes"),
required to be so paid prior to the date hereof and has made provision, in
accordance with generally accepted accounting principles, for all Taxes owed or
accrued through the date hereof;
(ii) The Company and each of its Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any of
them through the date hereof, and all such returns completely and accurately set
forth the amount of any Taxes relating to the applicable period;
(iii) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting by written notice to the Company or any
of its Subsidiaries or, to the Knowledge of the Company, threatening to assert
against the Company or any of its Subsidiaries any deficiency or claim for
additional Taxes. No written claim has been made since July 1, 1996 by a taxing
authority in a jurisdiction where the Company does not file reports and returns
that the Company is or may be subject to taxation by that jurisdiction. There
are no security interests on any of the assets of the Company or any of its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Taxes. The Company has not since January 1, 1994 entered into a closing
agreement pursuant to Section 7121 of the Code;
(iv) The Company has not received written notice of any audit of any
tax return filed by the Company, and the Company has not been notified in
writing by any tax authority that any such audit is contemplated or pending.
Neither the Company nor any of its Subsidiaries has executed or filed with the
IRS or any other taxing authority any agreement now in effect extending the
period for assessment or collection of any income or other Taxes, and no
extension of time with respect to any date on which a tax return was or is to be
filed by the Company is in force. True, correct and complete copies of all
federal, state and local income or franchise tax returns filed by the Company
and each of the Company's Subsidiaries
19
since January 1, 1994 and all communications relating thereto since that date
have been delivered to RECO or made available to representatives of RECO;
(v) The Company and each of its Subsidiaries has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other party; and
(vi) The Company estimates that as of September 30, 1997, the
accumulated and current earnings and profits ("E&P") of the Company (as
determined for federal income tax purposes) was not in excess of $325 million.
(p) Employee Benefit Plans. With respect to all the employee benefit
plans, programs and arrangements maintained for the benefit of any current or
former employee, officer or director of the Company or any of its Subsidiaries
(the "Company Benefit Plans"), except for such matters as, individually or in
the aggregate, could not reasonably be expected to have a Company MAE, (a) each
Company Benefit Plan and any related trust intended to be qualified under
Sections 401(a) and 501(a) of the Code has received a favorable determination
letter from the IRS that it is so qualified and nothing has occurred since the
date of such letter that could reasonably be expected to materially adversely
affect the qualified status of such Company Benefit Plan or related trust, (b)
each Company Benefit Plan has been operated in all material respects in
accordance with the terms and requirements of applicable law and all required
returns and filings for each Company Benefit Plan have been timely made, (c)
neither the Company nor any of its Subsidiaries has incurred any direct or
indirect material liability under, arising out of or by operation of Title I or
Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), in connection with any Company Benefit Plan or other retirement plan
or arrangement, and no fact or event exists that could reasonably be expected to
give rise to any such material liability, (d) except as set forth on Section
3.01(p) of the Disclosure Schedule, all material contributions due and payable
on or before the date hereof in respect of each Company Benefit Plan have been
made in full and in proper form, (e) except as set forth on Section 3.01(p) of
the Disclosure Schedule, neither the Company nor any of its Subsidiaries have
ever sponsored or been obligated to contribute to any "multiemployer plan" (as
defined in Section 3(37) of ERISA), "multiple employer plan" (as defined in
Section 413 of the Code) or "defined benefit plan" (as defined in Section 3(35)
of ERISA), (f) except as set forth on Section 3.01(p) of the Disclosure Schedule
and, except as otherwise required under ERISA, the Code and applicable state
Laws, no Company Benefit Plan currently or previously maintained by the Company
or any of its Subsidiaries provides any post-retirement health or life insurance
benefits, and neither the Company nor any of its Subsidiaries maintains any
obligations to provide post-retirement health or life insurance benefits in the
future, (g) all material reporting and disclosure obligations imposed under
ERISA and the Code have been satisfied with respect to each Company Benefit
Plan, and (h) except as set forth on Section 3.01(p) of the Disclosure Schedule,
no benefit or amount payable or which may become payable by the Company or any
of its Subsidiaries pursuant to any Company Benefit Plan, agreement or contract
with any employee, shall constitute an "excess parachute payment," within the
meaning of Section 280G of the Code, which is or may be subject to the
imposition
20
of any excise tax under Section 4999 of the Code or which could not reasonably
be expected to be deductible by reason of Section 280G of the Code.
(q) Properties. All of the real estate properties owned or leased by
the Company and each of its Subsidiaries as of the date hereof are listed in
Section 3.01(q) of the Company Disclosure Schedule. Each such property that is
leased by the Company or one of its Subsidiaries is designated as a leased
property in Section 3.01(q) of the Company Disclosure Schedule. The Company has
no direct or indirect ownership interest in any real property as of the date
hereof other than the properties owned by the Company and its Subsidiaries and
set forth in Sections 3.01(s) and 3.01(q) of the Company Disclosure Schedule.
The Company and each of its Subsidiaries own fee simple or leasehold title (each
as indicated in Section 3.01(q) of the Company Disclosure Schedule) to each of
the real properties identified in Section 3.01(q) of the Company Disclosure
Schedule (the "Company Properties"), free and clear of liens, mortgages or deeds
of trust, claims against title, charges which are liens, security interests or
other encumbrances on title (collectively, "Encumbrances"), except for such
Encumbrances as, individually and in the aggregate, could not reasonably be
expected to have a Company MAE. Except for such of the following as,
individually and in the aggregate, could not reasonably be expected to have a
Company MAE, the Company Properties are not subject to any easements, rights of
way, covenants, conditions, restrictions or other written agreements, laws,
ordinances and regulations affecting building use or occupancy, or reservations
of an interest in title (collectively, "Property Restrictions"), except for (i)
Encumbrances and Property Restrictions, (ii) Property Restrictions imposed or
promulgated by Law or any governmental body or authority with respect to real
property, including zoning regulations, that do not and as a consequence of the
Merger will not adversely affect the current use of the property, materially
detract from the value of or materially interfere with the present use of the
property, (iii) Encumbrances and Property Restrictions disclosed on existing
title policies, commitments (and the documents listed as exceptions therein),
reports, certificates of title, title opinions or current surveys (in each case
copies of which title policies, commitments (and the documents listed as
exceptions therein), reports and surveys have been, or will be prior to the
Closing, delivered or made available to RECO), and (iv) mechanics', carriers',
supplier's, workmen's or repairmen's liens and other Encumbrances, Property
Restrictions and other limitations of any kind, if any, which, individually or
in the aggregate, are not material in amount, do not and as a consequence of the
Merger will not materially detract from the value of or materially interfere
with the present use of any of the Company Properties subject thereto or
affected thereby, and do not and as a consequence of the Merger will not
otherwise materially impair business operations conducted by the Company and its
Subsidiaries and which have arisen or been incurred only in the ordinary course
of business. Except for such of the following as, individually and in the
aggregate, could not reasonably be expected to have a Company MAE, valid
policies of title insurance have been issued insuring the Company's or its
applicable Subsidiary's fee simple (or leasehold to the extent disclosed in
Section 3.01(q) of the Company Disclosure Schedule) title to each of the Company
Properties in amounts at least equal to the purchase price thereof or, if
acquired through merger, the stipulated value thereof, and such policies are, at
the date hereof, in full force and effect and no claim has been made against any
such policy and the Company has no knowledge of any facts or circumstances which
would constitute the basis for such a claim. Except for such of
21
the following as, individually and in the aggregate, could not reasonably be
expected to have a Company MAE, (A) no certificate, permit or license from any
governmental authority having jurisdiction over any of the Company Properties or
any agreement, easement or other right which is necessary to permit the lawful
use and operation of the buildings and improvements on any of the Company
Properties as currently operated or which is necessary to permit the lawful use
and operation of all driveways, roads and other means of egress and ingress to
and from any of the Company Properties (a "REA Agreement") has not been obtained
and is not in full force and effect, and there is no pending threat of
modification or cancellation of any of same nor is the Company or any of its
Subsidiaries currently in default under any REA Agreement and the Company
Properties are in full compliance with all governmental permits, licenses and
certificates, except for such defaults which or where such noncompliance could
not reasonably be expected to have a Company MAE; (B) no written notice of any
violation of any federal, state or municipal law, ordinance, order, regulation
or requirement affecting any portion of any of the Company Properties has been
issued by any governmental authority; (C) there are no material structural
defects relating to any of the Company Properties; (D) there is no Company
Property whose building systems are not in working order in any material
respect; and (E) there is no physical damage to any Company Property in excess
of $750,000 for which there is no insurance in effect (other than reasonable and
customary deductibles) covering the full cost of the restoration. Except for
such of the following as, individually and in the aggregate, could not
reasonably be expected to have a Company MAE, the use and occupancy of each of
the Company Properties complies in all material respects with all applicable
codes and zoning laws and regulations, and the Company has no knowledge of any
pending or threatened proceeding or action that will in any manner affect the
size of, use of, improvements on, construction on, or access to any of the
Company Properties, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such Company Properties.
Except for such of the following as, individually and in the aggregate, could
not reasonably be expected to have a Company MAE, neither the Company nor any of
its Subsidiaries has received any written notice to the effect that (x) any
betterment assessments have been levied against, or any condemnation or rezoning
proceedings are pending or threatened with respect to any of the Company
Properties or (y) any zoning, building or similar law, code, ordinance, order or
regulation is or will be violated by the continued maintenance, operation or use
of any buildings or other improvements on any of the Company Properties or by
the continued maintenance, operation or use of the parking areas. Except for
such of the following as, individually and in the aggregate, could not
reasonably be expected to have a Company MAE, following a casualty, each of the
Company Properties could be reconstructed and used for hotel purposes under
applicable zoning laws and regulations, except that in certain circumstances
such reconstruction would have to comply with the dimensional requirements of
applicable zoning laws and regulations in effect at the time of reconstruction.
Except as otherwise could not reasonably be expected to have a Company MAE,
there are no outstanding abatement proceedings or appeals with respect to the
assessment of any Company Property for the purpose of real property taxes, and
there are no agreements with any governmental authority with respect to such
assessments or tax rates on any Company Property. None of the Company Properties
is subject to any contractual restriction on the sale or other disposition
thereof or on the financing or release of financing thereon.
22
(r) Other Interests. Except for such Other Interests of the Company
or any of its Subsidiaries that, individually or in the aggregate, could not
reasonably be expected to have a Company MAE, neither the Company nor any of its
Subsidiaries owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business, trust
or other entity (other than investments in short-term investment securities)
(collectively "Other Interests").
(s) Related Party Transactions. The Company SEC Documents and/or the
Company Disclosure Schedule disclose all arrangements, agreements and contracts
entered into by the Company or any of its Subsidiaries (which are or will be in
effect as of or after the date of this Agreement) involving payments in excess
of $60,000 with any person who is an officer, director or affiliate of the
Company, any member of the immediate family, spouse, grandchild or, to the
Knowledge of the Company, any other relative of any of the foregoing or any
entity of which any of the foregoing is an Affiliate. Copies of all such
documents have previously been provided or made available to RECO and its
counsel.
(t) Labor Matters. Except as would not reasonably be expected to have
a Company MAE, neither the Company nor any of its Subsidiaries is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. Except as
would not reasonably be expected to have a Company MAE, as of the date hereof,
neither the Company nor any of its Subsidiaries are the subject of any material
proceeding asserting that the Company or any of its Subsidiaries has committed
an unfair labor practice or is seeking to compel it to bargain with any labor
union or labor organization nor, as of the date of this Agreement, is there
pending or, to the knowledge of the Company, threatened, any material labor
strike, dispute, walkout, work stoppage, slow- down or lockout involving the
Company or any of its Subsidiaries.
(u) Contracts and Commitments. Neither the Company, nor any of its
Subsidiaries, is a party to or bound by, and neither they nor any of their
properties or assets are bound or subject to, any contract or other agreement
(i) required to be disclosed in, or filed as an exhibit to, the Company SEC
Documents, or (ii) which will be required to be disclosed in or filed as an
exhibit to the Company's Form 10-K for the period ending December 31, 1997 (a
"Company Material Contract") that is not filed in the Company SEC Documents. All
Company Material Contracts are valid, existing, in full force and effect,
binding upon the Company or its Subsidiaries, as the case may be, in accordance
with their terms, and the Company and its Subsidiaries are not in default under
any of them, nor, to the best knowledge of the Company, is any other party to
any such contract or other agreement in default thereunder nor, to the best
knowledge of the Company, does any condition exist that with notice or lapse of
time or both would constitute a default thereunder.
(v) Environmental Matters. To the Knowledge of the Company, the
Company and its Subsidiaries are in compliance with all Environmental Laws (as
defined below), except for any noncompliance that, either singly or in the
aggregate, could not reasonably be expected to result in a Significant
Environmental Liability (as hereinafter
23
defined). As used in this Agreement, "Environmental Laws" shall mean all
federal, state and local laws, rules, regulations, ordinances and orders that
purport to regulate the release of hazardous substances or other materials into
the environment, or impose requirements relating to environmental protection or
health and safety. The Company has previously made available to RECO, or will
provide to RECO within twenty days from the date hereof, copies of all documents
concerning any environmental or health and safety matter adversely affecting the
Company and copies of environmental audits or risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials
(as defined below), spill control plans and material correspondence with any
federal, state or local government, court, administrative agency, commission, or
other governmental authority, domestic or foreign, regarding the foregoing. As
used in this Agreement, "Hazardous Materials" means any "hazardous waste" as
defined in either the United States Resource Conservation and Recovery Act or
regulations adopted pursuant to said act, any "hazardous substances" or
"hazardous materials" as defined in the United States Comprehensive
Environmental Response, Compensation and Liability Act and, to the extent not
included in the foregoing, any medical waste, oil or fractions thereof,
pollutants or contaminants regulated under any Environmental Laws. Except as set
forth in Section 3.01(v) of the Company Disclosure Schedule or disclosed in the
Company SEC Reports and except for any matter, which if the outcome were
adverse, could not reasonably be expected to result in a Significant
Environmental Liability, there is no administrative or judicial enforcement
proceeding, pending or to the Knowledge of the Company, threatened against the
Company or Company Subsidiary under any Environmental Law. Except as set forth
in Section 3.01(v) of its the Company Disclosure Schedule or disclosed in its
SEC Reports and except for any matter, which if the outcome were adverse, could
not reasonably be expected to result in a Significant Environmental Liability,
neither the Company nor any Company Subsidiary or, to the best Knowledge of the
Company, any legal predecessor of the Company or any Company Subsidiary, has
received any written notice that it is potentially responsible under any
Environmental Law for response costs, property damage, fines, penalties or
natural resource damages, as those terms are defined under the Environmental
Laws, at any location and, to the best knowledge of the Company, neither the
Company nor any Company Subsidiary has transported or disposed of, or allowed or
arranged for any third party to transport or dispose of, any waste containing
Hazardous Materials at any location included on the National Priorities List, as
defined under the Comprehensive Environmental Response, Compensation, and
Liability Act, or any location proposed for inclusion on that list or at any
location on any analogous state list. Except as set forth in Section 3.01(v) of
its Disclosure Schedule, and except for any matter, which if the outcome were
adverse, could not reasonably be expected to result in a Significant
Environmental Liability: (i) the Company has no knowledge of any release on the
real property owned or leased by the Company or any Company Subsidiary or
predecessor entity of Hazardous Materials in a manner that could reasonably be
expected to result in an order to perform a response action; (ii) to the best
knowledge of the Company, there is no hazardous waste treatment, storage or
disposal facility located at any of the real property owned or leased by the
Company or any Company Subsidiary; and (iii) to the best Knowledge of the
Company, no underground storage tank, landfill, surface impoundment, underground
injection well, friable asbestos or PCB's, as those terms are defined under the
Environmental Laws, are located at
24
any of the real property owned or leased by the Company or any Company
Subsidiary other than in compliance with applicable Environmental Laws.
"Significant Environmental Liability" shall mean a liability of the
Company or any of its Subsidiaries under any Environmental Law for response
costs, property damages, natural resource damages, fines and penalties as
defined under the Environmental Laws which, individually or in the aggregate, is
reasonably expected to exceed $200 million. The term "Significant Environmental
Liability" shall not include (i) any actual or potential threats of liability
under any Environmental Law with respect to a potential liability identified
solely due to the nature of the present or former use of any property
surrounding the property owned by the Company or its Subsidiaries so long as the
contamination is not on the Company's or such Subsidiary's Property), (ii) any
liability for remedial activity not required to be performed pursuant to any
Environmental Law, or (iii) any liability for which the Responsible Party is
reasonably likely to be a party other than the Company or any of its
Subsidiaries and for which such generator is a person who is a financially
viable party capable of implementing required remedial work.
(w) Intellectual Property. The Company and each of its Subsidiaries
own or has the right to use all trademarks, trade names, service marks, trade
secrets, copyrights and other proprietary intellectual property rights,
including without limitation the names "La Quinta Inns" and "La Quinta"
(collectively, the "Intellectual Property Rights") as are necessary in
connection with the business of the Company and its Subsidiaries, taken as a
whole, except (other than in the case of the names "La Quinta Inns" and "La
Quinta" where the failure to own or have the right to use such Intellectual
Property Rights could not reasonably be expected to have a Company MAE. Neither
the Company nor any of its Subsidiaries has infringed any Intellectual Property
Rights of a third party other than any infringements that, individually or in
the aggregate, could not reasonably be expected to have a Company MAE.
3.02 Representations and Warranties of RECO and OPCO. Except as
disclosed in the reports, schedules, forms, statements and other documents which
have been filed with the SEC on or before November 5, 1997 by Meditrust
Corporation prior to its merger with and into Santa ▇▇▇▇▇ Enterprises, Inc.
("Santa ▇▇▇▇▇") pursuant to the Exchange Act or in the RECO SEC Documents (as
defined herein), which have been filed with the SEC subsequent to December 31,
1996 pursuant to the Exchange Act, in each case, exclusive of any exhibits
thereto and information incorporated therein by reference, the RECO Companies
jointly and severally represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of the RECO
Companies and each of their respective Significant Subsidiaries is a corporation
or other legal entity duly organized, validly existing and in good standing
(with respect to jurisdictions which recognize such concept) under the Laws of
the jurisdiction in which it is organized and has all the requisite corporate,
partnership or limited liability company or other power, as the case may be, and
authority to own, operate, lease and encumber its properties and carry on its
business as now being conducted. The RECO Companies and each of their respective
25
Significant Subsidiaries are duly qualified or licensed to do business and in
good standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of their respective businesses or the
ownership or leasing of their respective properties makes such qualification or
licensing necessary, other than in such jurisdictions in which the failure to be
so qualified or licensed or to be in good standing individually or in the
aggregate could not be reasonably expected to have a material adverse effect on
the business, assets, prospects, financial condition or results of operations of
the RECO Companies and their respective Subsidiaries, taken as a whole, or on
the ability of the RECO Companies to perform any of their obligations under this
Agreement (any such effect, a "RECO MAE"). The RECO Companies have delivered to
the Company prior to the execution of this Agreement complete and correct copies
of their respective articles of incorporation and bylaws, in each case as
amended to date and have made available to the Company the articles of
incorporation and bylaws (or comparable organizational documents) of each of
their respective Subsidiaries, in each case as amended to date.
(b) Subsidiaries. Section 3.02(b) of the RECO Disclosure Schedule
lists all of the Significant Subsidiaries of the RECO Companies as of the date
hereof. Except as set forth on Section 3.02(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of, or other equity
interests in, each such Significant Subsidiary have been validly issued and are
fully paid and nonassessable and are owned directly or indirectly by the
Company, free and clear of all Liens.
(c) Capital Structure. The authorized capital stock of RECO consists
of 306 million shares of capital stock including (i) 270 million shares of RECO
Common Stock, (ii) 6 million shares of preferred stock, par value $.10 per share
("RECO Preferred Stock"), and (iii) 30 million shares of series common stock,
par value $.10 per share ("RECO Series Stock"). The authorized capital stock of
OPCO consists of 306 million shares of capital stock including (x) 270 million
shares of OPCO Common Stock, (y) 6 million shares of preferred stock, par value
$.10 per share ("OPCO Preferred Stock"), and (z) 30 million shares of series
common stock, par value $.10 per share ("OPCO Series Stock"). At the close of
business on December 23, 1997, (i) 88,969,888 paired shares of RECO Common Stock
and OPCO Common Stock were issued and outstanding, (ii) no shares of RECO
Preferred Stock and no shares of OPCO Preferred Stock were issued and
outstanding, (iii) no shares of RECO Series Stock and no shares of OPCO Series
Stock were issued and outstanding, (iv) no shares of RECO Common Stock and no
shares of OPCO Common Stock were held by RECO or OPCO in their respective
treasuries; provided, however, that, OPCO currently holds approximately 1.3
million shares of RECO Common Stock, (v) 5% of the issued and outstanding shares
of RECO Common Stock and 5% of the issued and outstanding shares of OPCO Common
Stock plus an additional 3,522,877 Paired Shares of each were reserved for
issuance pursuant to equity plans filed as exhibits to or described in the RECO
SEC Documents (collectively, the "RECO Stock Plans"), and (vi) 3,350,746 shares
of RECO Common Stock and 3,350,746 shares of OPCO Common Stock were reserved for
issuance upon the conversion of RECO's outstanding convertible senior notes and
convertible debentures described in Section 3.02(c) of the RECO Disclosure
Schedule. At the close of business on the Representation Date, except as set
forth above, there were no outstanding stock options, stock appreciation rights
or rights
26
(other than employee stock options or other rights ("RECO Employee Stock
Options") to purchase or receive RECO and OPCO Common Stock granted under the
RECO Stock Plans) to receive shares of RECO Common Stock on a deferred basis
granted under the RECO Stock Plans or otherwise. Section 3.02(c) of the RECO
Disclosure Schedule sets forth a complete and correct list, as of the
Representation Date, except as set forth above, of the number of Paired Shares
subject to RECO Employee Stock Options. All outstanding shares of capital stock
of the RECO Companies are, and all shares which may be issued, including shares
to be issued pursuant to this Agreement, will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. As of the close of business on the Representation Date, there were no
bonds, debentures, notes or other indebtedness or securities of the RECO
Companies having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of
RECO and OPCO may vote. Except as set forth above, as of the close of business
on the Representation Date, there were no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the RECO Companies or any of their respective Subsidiaries
is a party or by which any of them is bound obligating the RECO Companies or any
of their respective Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other voting
securities of the RECO Companies or of any of their respective Subsidiaries or
obligating the RECO Companies or any of their respective Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Except for agreements entered
into with respect to the RECO Stock Plans and except as set forth above, as of
the close of business on the Representation Date, and except as could not
reasonably be expected to be required to be disclosed pursuant to the RECO SEC
Documents, there were no outstanding contractual obligations of the RECO
Companies or any of their respective Subsidiaries to issue, repurchase, redeem,
exchange or otherwise acquire, or to register (under the federal or any state
securities laws) for resale, any shares of capital stock of the RECO Companies
or any of their respective Subsidiaries. As of the close of business on the
Representation Date, there were no outstanding contractual obligations of the
RECO Companies to vote or to dispose of any shares of the capital stock of any
of their respective Subsidiaries. The Company maintains a shareholder rights
plan.
(d) Authority; Noncontravention. RECO and OPCO have all requisite
corporate power and authority to enter into this Agreement and, subject to the
RECO/OPCO Shareholder Approvals, to consummate the Merger and to perform all of
their respective obligations under this Agreement. On or prior to the date
hereof, the Board of Directors of each of RECO and OPCO approved this Agreement
and the other transactions contemplated by this Agreement and resolved to
recommend that the holders of RECO/OPCO Common Stock adopt this Agreement, and
the Board of Directors of RECO has approved the Merger. The execution and
delivery of this Agreement by RECO and OPCO and the performance by RECO and OPCO
of their respective obligations contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of RECO and OPCO,
subject, in the case of the adoption of this Agreement, to RECO/OPCO Shareholder
Approvals as defined below. This Agreement has been duly executed and delivered
by RECO and OPCO and constitutes the legal, valid and binding obligations of
RECO and OPCO, enforceable against
27
each of them in accordance with its terms. Except as set forth in Section
3.02(d) of the RECO Disclosure Schedule, the execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, conflict with, breach, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the RECO
Companies or any of their respective Subsidiaries under, (i) assuming RECO/OPCO
Shareholder Approvals, the articles of incorporation or bylaws of the RECO
Companies or the comparable organizational documents of any of their respective
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the RECO Companies or any of their respective
Subsidiaries or their respective properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any Order or Law applicable to the RECO Companies or any of their respective
Subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not be
reasonably expected to have a RECO MAE. No Order, consent, approval or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to the RECO or any of their respective
Subsidiaries in connection with the execution and delivery of this Agreement by
RECO and OPCO or the consummation by RECO and OPCO of the Merger or the
performance of all of their respective obligations under this Agreement, except
for (1) the filing of a premerger notification and report form by the RECO
Companies under the HSR Act; (2) the filing with the SEC of (A) the Joint Proxy
Statement relating to the RECO/OPCO Shareholder Meetings, (B) the Form S-4, and
(C) such reports under the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated hereby; (3) the filing of
Articles of Merger with the Texas Secretary of State and appropriate documents
with the relevant authorities of other states in which the RECO Companies are
qualified to do business and such filings with Governmental Entities to satisfy
the applicable requirements of state securities or "blue sky" laws; (4) the
filing of a Certificate of Merger with the Secretary of State of Delaware; (5)
such filings with and approvals of the NYSE to permit the Paired Shares that are
to be issued in the Merger to be listed or quoted for trading thereon; (6) such
other filings and consents as may be required under any Environmental Law
pertaining to any notification, disclosure or required approval necessitated by
the Merger or the transactions contemplated by this Agreement; and (7) such
consents, approvals, Orders, authorizations, registrations, declarations or
filings, the failure of which to be made or obtained, individually or in the
aggregate, could not reasonably be expected to have a RECO MAE.
(e) SEC Documents; Undisclosed Liabilities. RECO and OPCO have timely
filed all required reports, schedules, forms, statements and other documents
with the SEC since December 31, 1996 (the "RECO SEC Documents"). As of their
respective dates, the RECO SEC Documents complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
such RECO SEC Documents, and none of the
28
RECO SEC Documents when filed contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any RECO SEC Document has been revised or superseded by a later
RECO SEC Document, as of the date hereof none of the RECO SEC Documents contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of RECO and OPCO included in the RECO SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of RECO and OPCO and their respective consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments). Except
(i) as reflected in such financial statements or in the notes thereto, (ii) as
contemplated hereunder, (iii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby (including without limitation
financing relating to the transactions contemplated hereby), and (iv) for
liabilities and obligations incurred since September 30, 1997 in the ordinary
course of business consistent with past practice, neither RECO, OPCO nor any
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, known or unknown, asserted or unasserted, contingent or otherwise),
including liabilities arising under any Environmental Laws, which are required
by generally accepted accounting principles to be reflected in a consolidated
balance sheet of RECO and OPCO and their respective consolidated Subsidiaries
and which, individually or in the aggregate, could reasonably be expected to
have a RECO MAE.
(f) Information Supplied. None of the information supplied or to be
supplied by the RECO Companies specifically for inclusion or incorporation by
reference in (i) the Form S-4, at the time the Form S-4 is filed with the SEC or
at the time it becomes effective under the Securities Act or (ii) the Joint
Proxy Statement, at the date it is first mailed to the shareholders of RECO and
OPCO or at the time of the RECO/OPCO Shareholder Meetings will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Joint
Proxy Statement and the Form S-4 will comply as to form in all material respects
with the requirements of the Exchange Act and the Securities Act, respectively,
and the rules and regulations thereunder, except that no representation or
warranty is made by RECO or OPCO with respect to statements made or incorporated
by reference therein based on information supplied by the Company specifically
for inclusion or incorporation by reference in the Joint Proxy Statement or the
Form S-4 or contained in any Company SEC Documents incorporated by reference in
the Joint Proxy Statement or the Form S-4.
29
(g) Absence of Certain Events. Except (i) as disclosed in the RECO
SEC Documents filed and publicly available prior to the date of this Agreement,
(ii) for the transactions provided for herein or permitted by Section 4.01(b),
and (iii) for liabilities incurred in connection with or as a result of this
Agreement, since September 30, 1997, there has not been (1) any RECO MAE, (2)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of RECO's or OPCO's
capital stock, other than regular quarterly cash dividends at the rate in effect
for the three quarters of 1997, as increased by the Board of Directors of RECO
and OPCO in the ordinary course ("Regular RECO Quarterly Dividends"), (3) any
split, combination or reclassification of any of RECO's or OPCO's capital stock
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of RECO's or OPCO's capital
stock, or (4) except insofar as may be required by a change in generally
accepted accounting principles, any change in accounting methods, principles or
practices by the RECO Companies.
(h) Litigation. Except as described in the RECO SEC Documents filed
prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against the RECO Companies pending or, to the RECO
Companies' Knowledge, threatened, which, individually or in the aggregate, could
reasonably be expected to have a RECO MAE.
(i) Voting Requirements. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of (x) RECO Common Stock,
voting as a single class, at the RECO Shareholder Meeting, which shall be a duly
convened meeting at which a quorum was present and acting throughout (the "RECO
Shareholder Approval"), to adopt this Agreement and (y) OPCO Common Stock,
voting as a single class, at the OPCO Shareholder Meeting, which shall be a duly
convened meeting at which a quorum was present and acting throughout (the "OPCO
Shareholder Approval" and together with the RECO Shareholder Approval, the
"RECO/OPCO Shareholder Approvals"), to approve the issuance of OPCO Common Stock
in connection with the Merger are the only votes of the holders of any class or
series of RECO's or OPCO's capital stock necessary to approve and adopt this
Agreement, the Subscription Agreement and the transactions contemplated hereby
and thereby.
(j) Brokers. No broker, investment banker, financial advisor or other
Person, other than ▇▇▇▇▇ ▇▇▇▇▇▇ Inc. and Salomon Brothers Inc. (collectively
doing business as, and hereinafter referred to as, "▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇"), the
fees and expenses of which will be paid by the RECO Companies or, if the Merger
occurs, the Surviving Corporation is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the RECO Companies. RECO has furnished to the Company true and
complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the engagement
of the Persons to whom such fees are payable.
30
(k) Opinion of Financial Advisor. The Boards of Directors of the RECO
Companies have received the opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney to the effect that,
as of the date of the Boards' approval of this Agreement, the Merger
Consideration is fair to the RECO Companies from a financial point of view.
(l) Ownership of Company Common Stock. RECO, OPCO and, to their
Knowledge, their respective Affiliates beneficially own (as such term is defined
in Rule 13d-3 under the Exchange Act) collectively less than one percent (1%) of
the capital stock of the Company. Except for this Agreement and the Shareholders
Agreement, neither RECO nor OPCO nor, to their knowledge, any of their
respective Affiliates is a party on the date hereof to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of shares of capital stock of the Company.
(m) Tax Matters. The RECO Companies have no plan or intention to take
any action that would cause the Merger not to qualify and continue to qualify as
a reorganization under Section 368(a) of the Code. The parties hereto agree that
the sale, if any, of the Company Management Assets to OPCO as provided in
Section 5.15 hereto shall not constitute a breach of this representation.
(n) REIT Status.
(i) RECO has been, for every year beginning with the taxable year
ending December 31, 1985, and will continue to be, organized and operated in
conformity with the requirements for RECO to qualify as a REIT under the Code
and the rules and regulations promulgated thereunder (the "REIT Requirements"),
and its proposed method of operation will enable it to continue to meet the REIT
Requirements.
(ii) Except as disclosed in the RECO Disclosure Schedule, RECO has
timely, completely and correctly filed all Federal, state and local tax returns
and reports required to be filed by it, and has timely paid or made adequate
provision for the payment of all taxes, if any, required to be paid with respect
thereto, except where the failure to file or pay is not reasonably expected to
have a RECO MAE. Except as set forth in the RECO Disclosure Schedule, neither
RECO nor any of its Significant Subsidiaries have been audited or examined by
the IRS or any state or local taxing authority and no notice of any such audit
has been received by RECO, nor has RECO extended any applicable statute of
limitations for the assessment or collections of tax. Except as disclosed in the
RECO Disclosure Schedule, no liens for taxes exist with respect to any assets or
properties of RECO or any of its Significant Subsidiaries, except for statutory
liens for taxes not yet due.
(iii) RECO has complied with all applicable laws, rules and
regulations relating to the payment and withholding of taxes (including without
limitations, withholding of taxes pursuant to Sections 1441, 1442, 3121 and 3402
of the Code or similar provisions under any federal, state or local laws,
domestic or foreign) and has, within the time and manner prescribed by law,
withheld from and paid over to the proper governmental
31
authorities all amounts required to be so withheld and paid over under
applicable laws, except where the failure to pay or withhold is not reasonably
expected to have a RECO MAE.
(o) Other Interests. Except for such Other Interests of the RECO
Companies or any of their respective Subsidiaries that, individually or in the
aggregate, could not reasonably be expected to have a RECO MAE, neither the RECO
Companies nor any of their respective Subsidiaries owns directly or indirectly
Other Interests.
(p) Related Party Transactions. The RECO SEC Documents and/or in
Section 3.02(p) of the RECO Disclosure Schedule disclose all arrangements,
agreements and contracts entered into by the RECO Companies or any of their
respective Subsidiaries (which are or will be in effect as of or after the date
of this Agreement) involving payments in excess of $60,000 with any person who
is an officer, director or affiliate of the RECO Companies, any member of the
immediate family, spouse, grandchild or, to the knowledge of the RECO Companies,
any other relative of any of the foregoing or any entity of which any of the
foregoing is an Affiliate. Copies of all such documents have previously been
provided or made available, or will be made available, to the Company and its
counsel.
(q) Labor Matters. Except as would not reasonably be expected to have
a RECO MAE, neither the RECO Companies nor any of their respective Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. Except as would not reasonably be expected to have a RECO MAE, as
of the date hereof, neither the RECO Companies or any of their respective
Subsidiaries are the subject of any material proceeding asserting that the RECO
Companies or any of their respective Subsidiaries has committed an unfair labor
practice or is seeking to compel it to bargain with any labor union or labor
organization nor, as of the date of this Agreement, is there pending or, to the
knowledge of the RECO Companies, threatened, any material labor strike, dispute,
walkout, work stoppage, slow-down or lockout involving the RECO Companies or any
of their respective Subsidiaries.
(r) Contracts and Commitments. Except as disclosed in the RECO
Disclosure Schedule, neither the RECO Companies, nor any of their respective
Subsidiaries, is a party to or bound by, and neither they nor any of their
properties or assets are bound or subject to, any contract or other agreement
(i) required to be disclosed in, or filed as an exhibit to, the RECO SEC
Documents, or (ii) which will be required to be disclosed in or filed as an
exhibit to the RECO or OPCO Form 10-K for the period ending December 31, 1997 (a
"RECO Material Contract") that is not filed in the RECO SEC Documents. All RECO
Material Contracts are valid, existing, in full force and effect, binding upon
the RECO Companies that are parties thereto or their respective Subsidiaries, as
the case may be, in accordance with their terms, and the RECO Companies and
their respective Subsidiaries are not in default under any of them, nor, to the
best knowledge of the RECO Companies, is any other party to any such contract or
other agreement in default thereunder nor, to the best knowledge of the RECO
Companies, does any condition exist that with notice or lapse of time or both
would constitute a default thereunder.
32
(s) Compliance with Laws; Permits. Neither the RECO Companies nor any
of their respective Subsidiaries is in violation of any Order or any Law
applicable to the RECO Companies or any of their respective Subsidiaries or any
of their respective properties or assets, except such violations as could not
reasonably be expected to have a RECO MAE. The RECO Companies and their
respective Subsidiaries have obtained all material licenses, permits and other
authorizations and have taken all actions required by applicable Law or
governmental regulations in connection with their business as now or previously
conducted where the failure to obtain any such license, permit or authorization
or to take any such action, individually or in the aggregate, could reasonably
be expected to have a RECO MAE. None of such licenses, permits or authorizations
shall be terminated or canceled as a result of the consummation of the
transactions contemplated by this Agreement, except for those licenses, permits
or authorizations the lack of which could not reasonably be expected to have a
RECO MAE.
(t) Tax Matters. Except as, individually or in the aggregate, could
not be reasonably expected to have a RECO MAE and except as set forth on Section
3.02(t) of the RECO Disclosure Schedule:
(i) The RECO Companies and each of their respective Subsidiaries has
paid or caused to be paid all Taxes, required to be so paid prior to the date
hereof and has made provision, in accordance with generally accepted accounting
principles, for all Taxes owed or accrued through the date hereof;
(ii) The RECO Companies and each of their respective Subsidiaries has
timely filed all federal, state, local and foreign tax returns required to be
filed by any of them through the date hereof, and all such returns completely
and accurately set forth the amount of any Taxes relating to the applicable
period;
(iii) Neither the IRS nor any other governmental authority is now
asserting by written notice to the RECO Companies or any of their respective
Subsidiaries or, to the Knowledge of the RECO Companies, threatening to assert
against the RECO Companies or any of their respective Subsidiaries any
deficiency or claim for additional Taxes. No written claim has been made since
July 1, 1996 by a taxing authority in a jurisdiction where the RECO Companies do
not file reports and returns that the RECO Companies are or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
assets of the RECO Companies or any of their respective Subsidiaries that arose
in connection with any failure (or alleged failure) to pay any Taxes. The RECO
Companies have not since January 1, 1994 entered into a closing agreement
pursuant to Section 7121 of the Code;
(iv) The RECO Companies have not received written notice of any audit
of any tax return filed by the RECO Companies, and the RECO Companies have not
been notified in writing by any tax authority that any such audit is
contemplated or pending. Neither the RECO Companies nor any of their
Subsidiaries has executed or filed with the IRS or any other taxing authority
any agreement now in effect extending the period for assessment or collection of
any income or other Taxes, and no extension of time with respect to any date on
which a tax return was or is to be filed by the RECO Companies is in force; and
33
(v) The RECO Companies and each of their respective Subsidiaries has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other party.
(u) Employee Benefit Plans. With respect to all the employee benefit
plans, programs and arrangements maintained for the benefit of any current or
former employee, officer or director of the RECO Companies or any of their
respective Subsidiaries (the "RECO Benefit Plans"), except for such matters as,
individually or in the aggregate, could not reasonably be expected to have a
RECO MAE, (a) each RECO Benefit Plan and any related trust intended to be
qualified under Sections 401(a) and 501(a) of the Code has received or has
applied for a favorable determination letter from the IRS that it is so
qualified and nothing has occurred since the date of such letter that could
reasonably be expected to materially adversely affect the qualified status of
such RECO Benefit Plan or related trust, (b) each RECO Benefit Plan has been
operated in all material respects in accordance with the terms and requirements
of applicable law and all required returns and filings for each RECO Benefit
Plan have been timely made, (c) neither the RECO Companies nor any of their
respective Subsidiaries has incurred any direct or indirect material liability
under, arising out of or by operation of Title I or Title IV of ERISA in
connection with any RECO Benefit Plan or other retirement plan or arrangement,
and no fact or event exists that could reasonably be expected to give rise to
any such material liability, (d) except as set forth on Section 3.02(u) of the
RECO Disclosure Schedule, all material contributions due and payable on or
before the date hereof in respect of each RECO Benefit Plan have been made in
full and in proper form, (e) except as set forth on Section 3.02(u) of the RECO
Disclosure Schedule, neither the RECO Companies nor any of its Subsidiaries have
ever sponsored or been obligated to contribute to any "multiemployer plan" (as
defined in Section 3(37) of ERISA), "multiple employer plan" (as defined in
Section 413 of the Code) or "defined benefit plan" (as defined in Section 3(35)
of ERISA), (f) except as set forth on Section 3.02(u) of the RECO Disclosure
Schedule and except as otherwise required under ERISA, the Code or applicable
state Laws, no RECO Benefit Plan currently or previously maintained by the RECO
Companies or any of their respective Subsidiaries provides any post-retirement
health or life insurance benefits, and neither the RECO Companies nor any of
their respective Subsidiaries maintains any obligations to provide
post-retirement health or life insurance benefits in the future, (g) all
material reporting and disclosure obligations imposed under ERISA and the Code
have been satisfied with respect to each RECO Benefit Plan, and (h) except as
set forth on Section 3.02(u) of the RECO Disclosure Schedule, no benefit or
amount payable or which may become payable by RECO or any of its Subsidiaries
pursuant to any RECO Benefit Plan, agreement or contract with any employee,
shall constitute an "excess parachute payment," within the meaning of Section
280G of the Code, which is or may be subject to the imposition of any excise tax
under Section 4999 of the Code or which could not reasonably be expected to be
deductible by reason of Section 280G of the Code.
(v) Properties. All of the real estate properties owned by the RECO
Companies and each of their respective Subsidiaries as of the date hereof are
listed in Section
34
3.02(v) of the RECO Disclosure Schedule. The RECO Companies have no direct or
indirect ownership interest in any real property as of the date hereof other
than the properties owned by the Company and its Subsidiaries and set forth in
Section 3.02(v) of the RECO Disclosure Schedule. The RECO Companies and each of
their respective Subsidiaries own fee simple title to or a long-term leasehold
interest in each of the real properties identified in Section 3.02(v) of the
RECO Disclosure Schedule (the "RECO Owned Properties"), free and clear of
Encumbrances, except for such Encumbrances as, individually and in the
aggregate, could not reasonably be expected to have a RECO MAE. Except for such
of the following as, individually and in the aggregate, could not reasonably be
expected to have a RECO MAE, the RECO Owned Properties are not subject to any
Property Restrictions, except for (i) Encumbrances and Property Restrictions,
(ii) Property Restrictions imposed or promulgated by Law or any governmental
body or authority with respect to real property, including zoning regulations,
that do not and as a consequence of the Merger will not adversely affect the
current use of the property, materially detract from the value of or materially
interfere with the present use of the property, (iii) Encumbrances and Property
Restrictions disclosed on existing title policies, commitments (and the
documents listed as exceptions therein), reports, certificates of title, title
opinions or current surveys (in each case copies of which title policies,
commitments (and the documents listed as exceptions therein), reports and
surveys have been or will, prior to Closing, be delivered or made available to
RECO), and (iv) mechanics', carriers', supplier's, workmen's or repairmen's
liens and other Encumbrances, Property Restrictions and other limitations of any
kind, if any, which, individually or in the aggregate, are not material in
amount, do not and as a consequence of the Merger will not materially detract
from the value of or materially interfere with the present use of any of the
RECO Owned Properties subject thereto or affected thereby, and do not and as a
consequence of the Merger will not otherwise materially impair business
operations conducted by the RECO Companies and its respective Subsidiaries and
which have arisen or been incurred only in the ordinary course of business.
Except for such of the following as, individually and in the aggregate, could
not reasonably be expected to have a RECO MAE, valid policies of title insurance
have been issued insuring the RECO Companies' or their respective applicable
Subsidiary's fee simple title or leasehold to each of the RECO Owned Properties
in amounts at least equal to the purchase price thereof or, if acquired through
merger, the stipulated value thereof, and such policies are, at the date hereof,
in full force and effect and no claim has been made against any such policy and
the RECO Companies have no knowledge of any facts or circumstances which would
constitute the basis for such a claim. Except for such of the following as,
individually and in the aggregate, could not reasonably be expected to have a
RECO MAE, (A) no certificate, permit or license from any governmental authority
having jurisdiction over any of the RECO Owned Properties or any agreement,
easement or other right which is necessary to permit the lawful use and
operation of the buildings and improvements on any of the RECO Owned Properties
as currently operated or which is necessary to permit the lawful use and
operation of all driveways, roads and other means of egress and ingress to and
from any of the RECO Owned Properties (a "REA Agreement") has not been obtained
and is not in full force and effect, and there is no pending threat of
modification or cancellation of any of same nor are the RECO Companies or any of
their respective Subsidiaries currently in default under any REA Agreement and
the RECO Owned Properties are in full compliance with all governmental permits,
licenses and certificates,
35
except for such defaults which or where such noncompliance could not reasonably
be expected to have a RECO MAE; (B) no written notice of any violation of any
federal, state or municipal law, ordinance, order, regulation or requirement
affecting any portion of any of the RECO Owned Properties has been issued by any
governmental authority; (C) there are no material structural defects relating to
any of the RECO Owned Properties; (D) there is no RECO Owned Property whose
building systems are not in working order in any material respect; and (E) there
is no physical damage to any Company Property in excess of $750,000 for which
there is no insurance in effect (other than reasonable and customary
deductibles) covering the full cost of the restoration. Except for such of the
following as, individually and in the aggregate, could not reasonably be
expected to have a RECO MAE, the use and occupancy of each of the RECO Owned
Properties complies in all material respects with all applicable codes and
zoning laws and regulations, and the RECO Companies have no knowledge of any
pending or threatened proceeding or action that will in any manner affect the
size of, use of, improvements on, construction on, or access to any of the RECO
Companies Properties, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such RECO Owned
Properties. Except for such of the following as, individually and in the
aggregate, could not reasonably be expected to have a RECO MAE, neither the RECO
Companies nor any of their respective Subsidiaries has received any written
notice to the effect that (x) any betterment assessments have been levied
against, or any condemnation or rezoning proceedings are pending or threatened
with respect to any of the RECO Owned Properties or (y) any zoning, building or
similar law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other improvements
on any of the RECO Owned Properties or by the continued maintenance, operation
or use of the parking areas. Except as otherwise could not reasonably be
expected to have a RECO MAE, there are no outstanding abatement proceedings or
appeals with respect to the assessment of any RECO Owned Property for the
purpose of real property taxes, and there are no agreements with any
governmental authority with respect to such assessments or tax rates on any RECO
Owned Property.
(w) Environmental Matters. To the Knowledge of the RECO Companies,
the RECO Companies and their respective Subsidiaries are in compliance with all
Environmental Laws (as defined below), except for any noncompliance that, either
singly or in the aggregate, could not reasonably be expected to result in a RECO
Significant Environmental Liability. The RECO Companies have previously made
available to the Company, or will provide, upon request, within twenty days from
the date hereof, copies of all documents concerning any environmental or health
and safety matter adversely affecting the RECO Companies and copies of
environmental audits or risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans and
material correspondence with any federal, state or local government, court,
administrative agency, commission, or other governmental authority, domestic or
foreign, regarding the foregoing. Except as set forth in Section 3.02(w) of the
RECO Disclosure Schedule or disclosed in the RECO SEC Reports and except for any
matter, which if the outcome were adverse, could not reasonably be expected to
result in a RECO Significant Environmental Liability, there is no administrative
or judicial enforcement proceeding, pending or to the Knowledge of the RECO
Companies, threatened against the RECO Companies or any of their
36
respective Subsidiaries under any Environmental Law. Except as set forth in
Section 3.02(w) of its the RECO Disclosure Schedule or disclosed in the RECO SEC
Reports and except for any matter, which if the outcome were adverse, could not
reasonably be expected to result in a RECO Significant Environmental Liability,
neither the RECO Companies nor any of their respective Subsidiaries or, to the
best Knowledge of the RECO Companies, any legal predecessor of the RECO
Companies or any of their respective Subsidiaries, has received any written
notice that it is potentially responsible under any Environmental Law for
response costs, property damage, fines, penalties or natural resource damages,
as those terms are defined under the Environmental Laws, at any location and, to
the best knowledge of the RECO Companies, neither the RECO Companies nor any of
their respective Subsidiaries has transported or disposed of, or allowed or
arranged for any third party to transport or dispose of, any waste containing
Hazardous Materials at any location included on the National Priorities List, as
defined under the Comprehensive Environmental Response, Compensation, and
Liability Act, or any location proposed for inclusion on that list or at any
location on any analogous state list. Except as set forth in Section 3.02(w) of
the RECO Disclosure Schedule, and except for any matter, which if the outcome
were adverse, could not reasonably be expected to result in a RECO Significant
Environmental Liability, the RECO Companies have no Knowledge of any release on
the real property owned or leased by the RECO Companies or any of their
respective Subsidiaries or predecessor entity of Hazardous Materials in a manner
that could reasonably be expected to result in an order to perform a response
action or in material liability under the Environmental Laws and, to the best
knowledge of the RECO Companies, there is no hazardous waste treatment, storage
or disposal facility, and except for the following which, to the best Knowledge
of the RECO Companies, could not reasonably be expected to result in a RECO
Significant Environmental Liability based on its current condition, underground
storage tank, landfill, surface impoundment, underground injection well, friable
asbestos or PCB's, as those terms are defined under the Environmental Laws,
located at any of the real property owned or leased by the RECO Companies or any
of their respective Subsidiaries other than in compliance with applicable
Environmental Laws.
"RECO Significant Environmental Liability" shall mean a liability of
the RECO Companies or any of their respective Subsidiaries under any
Environmental Law for response costs, property damages, natural resource
damages, fines and penalties as defined under the Environmental Laws which,
individually or in the aggregate, is reasonably expected to exceed $200 million.
The term "RECO Significant Environmental Liability" shall not include (i) any
actual or potential threats of liability under any Environmental Law with
respect to a potential liability identified solely due to the nature of the
present or former use of any property surrounding the property owned by the RECO
Companies or their respective Subsidiaries so long as the contamination is not
on the RECO Companies' or such Subsidiary's Property), (ii) any liability for
remedial activity not required to be performed pursuant to any Environmental
Law, or (iii) any liability for which the Responsible Party is reasonably likely
to be a party other than the RECO Companies or any of their respective
Subsidiaries and for which such generator is a person who is a financially
viable party capable of implementing required remedial work.
37
IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01 Conduct of Business.
(a) Conduct of Business by the Company. Except as contemplated by
this Section 4.01 and except as set forth in Section 4.01(a) of the Company
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, the Company will, and will cause its Significant Subsidiaries
to, carry on their respective businesses in all material respects in the
ordinary course thereof in substantially the same manner as heretofore conducted
and in compliance in all material respects with all applicable Laws and, to the
extent consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, use all reasonable efforts to keep available the
services of their current officers and other key employees and preserve their
relationships with those Persons having business dealings with them to the end
that their goodwill and ongoing businesses will be unimpaired at the Effective
Time. Except as set forth in Section 4.01(a) of the Company Disclosure Schedule,
without limiting the generality or effect of the foregoing, during the period
from the date of this Agreement to the Effective Time, the Company will not, and
will not permit any of its Subsidiaries to:
(i) other than (i) normal quarterly dividends of $.0175 per Share
payable by the Company to its shareholders, and (ii) dividends and distributions
(including liquidating distributions) by a direct or indirect wholly owned
Subsidiary of the Company to its parent, or by a Subsidiary that is partially
owned by the Company or any of its Subsidiaries, provided that the Company or
any such Subsidiary receives or is to receive its proportionate share thereof,
(A) declare, set aside or pay any dividends on, or make any other distributions
in respect of, any of its capital stock, (B) split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(C) other than pursuant to Awards outstanding as of the date hereof, purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) other than pursuant to Awards outstanding as of the date hereof,
issue, deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities;
(iii) amend its articles of incorporation, bylaws or other comparable
organizational documents;
(iv) except for (a) pending transactions disclosed in the Company SEC
Documents to be completed substantially in accordance with the budgets
contemplated for such transactions as of the date hereof, copies of which shall
have been provided to RECO on or prior to the date hereof, (b) the continued
development of forty-three properties currently under construction, a schedule
of which development is included on Schedule 4.01(a) of the
38
Company Disclosure Schedule (the "Development Properties"), (c) the purchase and
development on terms consistent with general market conditions of up to (I)
twenty-one additional properties for development as inns or suites that the
Company currently intends to approve, consistent with past practices, through
June 1998, and (II) the purchase and conversion of three additional properties
into Company facilities through June 1998 (collectively, the "Future Development
Properties"), and (d) the purchase of equipment, supplies and similar items in
the ordinary course of business, after the date of this Agreement, acquire any
assets (including acquisitions of undeveloped land) of, or acquire by merging or
consolidating with, or by any other manner, any business or any corporation,
limited liability company, partnership, joint venture, association or other
business organization or division thereof; provided, however, that the Company
agrees to provide RECO and OPCO with periodic progress reports regarding the
Development Properties and the Future Development Properties and to provide RECO
and OPCO with such additional information regarding such properties as may be
reasonably requested;
(v) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets, other than
(i) in the ordinary course of business consistent with past practice, (ii) (A)
in the case of any real property, in a transaction that is the subject of a
binding contract in existence on the date of this Agreement and disclosed in
Section 4.01(a)(v) of the Company Disclosure Schedule or (B) in the case of
personal property or intangible property, in a transaction that is not material
individually or in the aggregate;
(vi) (a) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any of
its Subsidiaries, guarantee any debt securities of another Person, enter into
any "keep well" or other agreement to maintain any financial statement condition
of another Person or enter into any arrangement having the economic effect of
any of the foregoing (including any amendments of existing credit and financing
arrangements), except for short-term borrowings incurred in the ordinary course
of business consistent with past practice and short-term borrowings used to
refinance existing debt as it matures, all of which debt shall be on terms
consistent with general market conditions and shall not carry any prepayment
penalty or prohibition on prepayments thereunder; provided, however, that no
further issuances of notes or other debt instruments under any indenture to
which the Company or any Subsidiary is a party, may be made prior to the
Effective Date; (b) make any loans, advances or capital contributions to, or
investments in, any other Person, other than to the Company or any Subsidiary of
the Company or to officers and employees of the Company or any of its
Subsidiaries for travel, business, relocation or similar costs and expenses in
the ordinary course of business or (c) incur additional debt, unless necessary
to satisfy the Company's obligations under the Subscription Agreement and such
debt is incurred immediately prior to the time for satisfying such obligation;
provided, however that, notwithstanding the foregoing, the Company shall be
permitted to: (I) incur additional borrowings under the Company's existing $325
million and $75 million credit facilities, (II) increase the amounts available
and incur additional borrowings under such credit facilities on terms consistent
with general market conditions for such additional borrowings, (III) incur
39
additional short-term debt obligations, and (IV) incur additional medium term
debt obligations consistent with the Company's past practice with respect to
medium term note issuances, in each case (i) to fund the activities related to
the Development Properties and Future Development Properties, (ii) to fund the
payment of principal amortization on the debt set forth in Section 4.01(a) of
the Company Disclosure Schedule, (iii) to refinance the Company's 9-1/4% Senior
Subordinated Notes, (iv) to refinance the Company's existing Prudential
mortgages, and (v) to replace the Company's existing Treasury locks; provided,
however, in each case that all such debt shall be pre-payable without penalty or
additional cost at any time on or prior to the Effective Time;
(vii) make or agree to make any capital expenditure or capital
expenditures, excluding land purchases, other than (A) in accordance with the
capital budgets previously furnished to the RECO Companies, provided that the
amount of such capital expenditures may exceed budgeted amounts by not more
than, as to any specifically budgeted matter, 10% or, as to all such capital
expenditures, 5% in the aggregate, or (B) as permitted by Section 4.01(a)(iv);
(viii) make any change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles;
(ix) except as required by Law or contemplated hereby, enter into,
adopt or amend in any material respect or terminate any Company employee benefit
plan or any other agreement, plan or policy involving the Company or any of its
Subsidiaries and one or more of their directors, officers or employees, or
materially change any actuarial or other assumptions used to calculate funding
obligations with respect to any Company pension plans, or change the manner in
which contributions to any Company pension plans are made or the basis on which
such contributions are determined;
(x) except as disclosed in Section 4.01(a) of the Company Disclosure
Schedule, increase the compensation of any director, officer or other employee
of the Company or any of its Subsidiaries earning more than $100,000 per annum
or enter into or amend any employment agreement with any such Person, or pay any
benefit or amount not required by a plan or arrangement as in effect on the date
of this Agreement to any such Person;
(xi) settle any shareholder derivative or class action claims arising
out of or in connection with any of the transactions contemplated by this
Agreement;
(xii) enter into any agreement with any franchisor or franchisee with
respect to any real property assets owned or leased by the Company or any of its
Subsidiaries or any third party, as the case may be, or any agreement under
which the Company or any of its Subsidiaries would provide hotel management
services, without the prior consent of RECO, which consent will not be
unreasonably withheld or delayed; or
40
(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Conduct of Business by RECO. Except as contemplated by this
Agreement and except as set forth in Section 4.01(b) of the RECO Disclosure
Schedule, during the period from the date of this Agreement to the Effective
Time, the RECO Companies will, and will cause their respective Significant
Subsidiaries to, carry on their respective businesses in all material respects
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in compliance in all material respects with all
applicable Laws and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, use all
reasonable efforts to keep available the services of their current officers and
other key employees and preserve their relationships with those Persons having
business dealings with them to the end that their goodwill and ongoing
businesses will be unimpaired at the Effective Time; provided, however, that the
foregoing shall not restrict the ability of the RECO Companies and their
respective Subsidiaries to engage in any acquisition, merger, exchange offer,
equity or debt financing or other similar corporate transaction except to the
extent prohibited by Sections 4.01(b)(i), (ii), (iii), (iv) or (v) below. Except
as set forth in Section 4.01(b) of the RECO Disclosure Schedule, without
limiting the generality or effect of the foregoing, during the period from the
date of this Agreement to the Effective Time, the RECO Companies will not, and
will not permit any of their respective Subsidiaries to:
(i) other than (A) dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of RECO or OPCO
to its parent, or by a Subsidiary that is partially owned by RECO or OPCO or any
of their respective Subsidiaries, provided that RECO, OPCO or any such
Subsidiary receives or is to receive its proportionate share thereof, (B)
dividends required in the reasonable judgment of RECO in order to preserve
RECO's status as a REIT or to avoid federal income or excise taxes on its
undistributed income, (C) Regular RECO Quarterly Dividends, and (D) special
dividends and distributions which the Board of Directors of each of RECO and
OPCO determines are in the best interests of the RECO Companies, their
shareholders and, assuming the consummation of the Merger, the Company's
shareholders, (1) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (2) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (3) purchase or offer to purchase any capital stock of either
of the RECO Companies, other than purchases (w) made in the open market in
accordance with Regulation M under the Exchange Act, (x) in accordance with any
agreement filed or matter described in the RECO SEC Documents, (y) by either of
the RECO Companies of its capital stock held by the other RECO Company, and (z)
by either of the RECO Companies of newly issued common stock of the other RECO
Company for the purposes of pairing shares of RECO Common Stock and OPCO Common
Stock;
(ii) incur or guarantee any Indebtedness, issue or sell any debt
securities or warrants or other rights to acquire any debt securities or enter
into any arrangement having the economic effect of any of the foregoing (any
such event, an "Incurrence"), such that the
41
consolidated Indebtedness of RECO and OPCO, giving effect to such Incurrence,
would cause RECO's Debt to Market Capitalization Ratio to exceed an amount equal
to 50%. For purposes of this Section, "Indebtedness" means, with respect to any
Person, all obligations of such Person (including the current portion thereof)
that would be required to be reflected as indebtedness on a consolidated balance
sheet for such Person prepared in accordance with generally accepted accounting
principles and "RECO's Debt to Market Capitalization Ratio" means the total
consolidated and unconsolidated debt of the RECO Companies as a percentage of
the market value of outstanding shares of stock of the RECO Companies and all
units of limited partnership of all operating partnerships of which either of
the RECO Companies is the sole general partner plus total consolidated and
unconsolidated debt;
(iii) directly, or indirectly through a Subsidiary, enter into any
agreement, or participate in active negotiations with any third party, relating
to any tender or exchange offer, merger, consolidation, sale of all or
substantially all of the capital stock or assets of RECO or OPCO or other form
of business transaction the reasonably foreseeable effect of which would be (A)
to delay the Effective Time beyond July 31, 1998 or to prevent the Effective
Time from occurring, or (B) result in the Merger not being treated as a tax-free
reorganization for federal income tax purposes;
(iv) take any action or fail to take any action which could
reasonably be expected to terminate RECO's status as a REIT; or
(v) authorize, or commit or agree to take, any of the foregoing
actions.
(c) Other Actions. Except as required by Law, neither the Company
(except as permitted by Sections 1.09, 5.15 or 5.16), on the one hand, nor RECO
or OPCO, on the other hand, will, nor will they permit any of their respective
Subsidiaries to, voluntarily take any action that could reasonably be expected
to result in (i) any of the representations and warranties of such party set
forth in this Agreement that are qualified as to materiality becoming untrue,
(ii) any of such representations and warranties that are not so qualified
becoming untrue in any material respect, or (iii) any of the conditions to the
Merger set forth in Article VII not being satisfied.
(d) Advice of Changes. The Company and RECO will promptly advise the
other party orally and in writing of (i) any representation or warranty made by
it or, in the case of RECO, made by OPCO contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it or, in the case of
RECO, the failure by OPCO to comply in any material respect with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, or (iii) any change or event having, or
which, insofar as can reasonably be foreseen, could reasonably be expected to
have a material adverse effect on such party or on the truth of their respective
representations and warranties or the ability of the conditions set forth in
Article VII to be satisfied; provided, however, that no such notification
42
will affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
4.02 No Solicitation.
(a) The Company shall not, nor shall it permit any of its
Subsidiaries to, nor shall it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant, agent or other
advisor or representative of the Company or any of its Subsidiaries to, (i)
solicit, initiate, or encourage the submission of, any Company Takeover
Proposal, (ii) except to the extent permitted by paragraph (b), enter into any
agreement with respect to any Company Takeover Proposal or (iii) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Company Takeover Proposal; provided, however, that
prior to the Company Shareholder Meeting, to the extent required by the
fiduciary obligations of the Board of Directors of the Company, as determined in
good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, the Company may, in response to unsolicited requests
therefor, participate in discussions or negotiations with, or furnish
information pursuant to an appropriate confidentiality agreement to, any person.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any officer, director or
employee of or any investment banker, attorney, accountant, agent or other
advisor or representative of the Company or any of its Subsidiaries, whether or
not such person is purporting to act on behalf of the Company or otherwise,
shall be deemed to be a breach of this, paragraph by the Company. For all
purposes of this Agreement, "Company Takeover Proposal" means any proposal,
other than a proposal by RECO or OPCO, for a merger, consolidation, share
exchange, business combination or other similar transaction involving the
Company or any of its Significant Subsidiaries or any proposal or offer
(including, without limitation, any proposal or offer to shareholders of the
Company), other than a proposal or offer by RECO or OPCO, to acquire in any
manner, directly or indirectly, more than a 10% equity interest in any voting
securities of, or a substantial portion of the assets of, the Company or any of
its Significant Subsidiaries. The Company immediately shall cease and cause to
be terminated all existing discussions or negotiations with any persons
conducted heretofore with respect to, or that could reasonably be expected to
lead to, any Company Takeover Proposal. As used herein, a "Significant
Subsidiary" means any Subsidiary that would constitute a "significant
subsidiary" within the meaning of Rule 1.02 of Regulation S-X of the SEC.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify,
in a manner adverse to RECO or OPCO, the approval or recommendation by the Board
of Directors of the Company or any such committee of this Agreement or the
Merger or (ii) approve or recommend, or propose to approve or recommend, any
Company Takeover Proposal. Notwithstanding the foregoing, the Board of Directors
of the Company, to the extent required by the fiduciary obligations thereof, as
determined in good faith by a majority of the disinterested members thereof
based on the advice of outside counsel, may approve or
43
recommend (and, in connection therewith, withdraw or modify its approval or
recommendation of this Agreement or the Merger) a superior proposal. For all
purposes of this Agreement, "superior proposal" means a bona fide written
proposal made by a third party to acquire the Company pursuant to a tender or
exchange offer, a merger, a share exchange, a sale of all or substantially all
of its assets or otherwise, in any such case, on terms which a majority of the
disinterested members of the Board of Directors of the Company determines in
their good faith judgment (based on the advice of independent financial advisors
that the value of the consideration provided for in such proposal exceeds the
value of the consideration provided for in the Merger) to be more favorable to
the Company and its stockholders than the Merger and for which financing, to the
extent required, is then fully committed or which, in the good faith judgment of
a majority of such disinterested members (based on the advice of independent
financial advisors), is reasonably capable of being financed by such third
party.
(c) The Company shall promptly advise RECO orally and in writing of
any Company Takeover Proposal or any inquiry with respect to or which could
reasonably be expected to lead to any Company Takeover Proposal, the material
terms and conditions of such Company Takeover Proposal or inquiry and the
identity of the person making any such Company Takeover Proposal or inquiry. The
Company will keep RECO reasonably fully informed of the status and details of
any such Company Takeover Proposal or inquiry. The RECO Companies shall waive
any applicable confidentiality provisions to the extent necessary to allow the
Company solely to explain the terms of this transaction to persons making
Company Takeover Proposals.
(d) Nothing contained in this Section 4.02 will prohibit the Company
from taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if the Company Board determines that such disclosure is
necessary in order to comply with the Company Board's fiduciary duties under
applicable Law; provided, however, that neither the Company nor the Company
Board nor any committee thereof may, except in accordance with Section 4.02(b),
withdraw or modify, or propose publicly to withdraw or modify, its position with
respect to this Agreement or the Merger or approve or recommend, or propose
publicly to approve or recommend, a Company Takeover Proposal.
4.03 The Company's Accumulated and Current Earnings and Profits. The
Company shall obtain a certification of the earnings and profits calculation
through December 31, 1996 from KPMG. The Company shall use its reasonable best
efforts to have KPMG provide such certification to the Company and to RECO no
later than February 28, 1998.
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V. ADDITIONAL COVENANTS
5.01 Preparation of the Form S-4 and the Joint Proxy Statement;
Shareholders Meetings.
(a) As soon as practicable following the date of this Agreement, the
Company, RECO and OPCO will prepare and file with the SEC the Joint Proxy
Statement. RECO will prepare and file, not later than promptly after the Joint
Proxy Statement has been cleared by the SEC, with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of the Company
and RECO will use all reasonable efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. The
Company will use all reasonable efforts to cause the Joint Proxy Statement to be
mailed to the Company's shareholders, and RECO and OPCO will use all reasonable
efforts to cause the Joint Proxy Statement to be mailed to RECO's and OPCO's
shareholders, in each case as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. RECO and OPCO will also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities Laws in connection
with the issuance of Paired Shares in the Merger and under the Company Stock
Plans and RECO Stock Plans and the Company will furnish all information
concerning the Company and the holders of Company Common Stock as may be
reasonably requested in connection with any such action.
(b) Subject to its rights to terminate this Agreement pursuant to the
applicable provisions of Section 7.01, the Company will as soon as practicable
following the date of this Agreement, duly call, give notice of, convene and
hold a meeting of its shareholders (the "Company Shareholder Meeting") for the
purpose of obtaining the Company Shareholder Approval and, through the Company
Board, subject to the provisions of Section 4.02 recommend to Shareholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby. Without limiting the generality or effect of the foregoing
but subject to the Company's right to terminate this Agreement pursuant to
Section 4.02, the Company's obligations pursuant to the first sentence of this
Section 5.01(b) will not be affected by the commencement, public proposal,
public disclosure or communication to the Company of any Company Takeover
Proposal.
(c) Subject to its rights to terminate this Agreement under the
applicable provisions of Section 7.01, each of RECO and OPCO will, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of its shareholders (the "RECO/OPCO Shareholder
Meetings") for the purpose of obtaining the RECO/OPCO Shareholder Approvals and,
through RECO's Board of Directors, recommend that its shareholders approve the
adoption of this Agreement and through OPCO's Board of Directors, recommend that
its shareholders approve the issuance of Paired Shares pursuant to the
Subscription Agreement.
45
(d) RECO, OPCO and the Company will use reasonable efforts to hold
the RECO/OPCO Shareholder Meetings and the Company Shareholder Meeting on the
same date and as soon as practicable after the date hereof.
(e) RECO and OPCO will use their reasonable best efforts to publicly
announce the Adjusted E&P Distribution Amount and the final Exchange Ratio at
least six (6) Trading Days prior to the Company Shareholder Meeting.
5.02 Access to Information; Confidentiality. Each of the Company,
RECO and OPCO will, and will cause each of its respective Subsidiaries to,
afford to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of the Company, RECO and
OPCO will, and will cause each of its respective Subsidiaries to, furnish
promptly to the other parties (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities Laws and (b) all other information
concerning its business, financial condition, results of operations, properties
and personnel as such other parties may reasonably request. Subject to the
requirements of applicable Law, and except for such actions as are necessary to
disseminate any documents necessary to consummate the Merger, the parties will,
and will instruct each of their respective Affiliates, associates, partners,
employees, agents and advisors to, hold in confidence all such information as is
confidential or proprietary, will use such information only in connection with
the Merger and, if this Agreement is terminated in accordance with its terms,
will deliver promptly to the others (or destroy and certify to the other the
destruction of) all copies of such information (and any copies, compilations or
extracts thereof or based thereon) then in their possession or under their
control. Without limiting the generality of the foregoing, the Company will, and
will cause each of its respective Subsidiaries to, afford the RECO Companies and
their respective officers, employees, counsel and other advisors and
representatives with access to conduct such environmental investigations and
site assessments as the RECO Companies may deem necessary or desirable and to
otherwise assist in such environmental investigations and inquiries.
5.03 Regulatory Filings.
(a) Within 20 calendar days after the date hereof, RECO, OPCO and the
Company will make such filings, if any, as may be required by the HSR Act with
respect to the consummation of the transactions contemplated by this Agreement.
Thereafter, RECO, OPCO and the Company will file or cause to be filed as
promptly as practicable with the United States Federal Trade Commission (the
"FTC") and the United States Department of Justice (the "DOJ") supplemental
information, if any, which may be required or requested by the FTC or the DOJ
pursuant to the HSR Act. All filings referred to in this Section 5.03(a) will
comply in all material respects with the requirements of the respective Laws
pursuant to which they are made.
46
(b) Without limiting the generality or effect of Section 5.03(a),
each of the parties will (i) use their respective reasonable efforts to comply
as expeditiously as possible with all lawful requests of Governmental Entities
for additional information and documents pursuant to the HSR Act, if applicable,
(ii) not (A) extend any waiting period under the HSR Act or (B) enter into any
agreement with any Governmental Entity not to consummate the transactions
contemplated by this Agreement, except with the prior consent of each of the
other parties hereto, and (iii) cooperate with each other and use reasonable
efforts to prevent the entry of, and to cause the lifting or removal of any
temporary restraining order, preliminary injunction or other judicial or
administrative order which may be entered into in connection with the
transactions contemplated by this Agreement, including without limitation the
execution, delivery and performance by the appropriate entity of such
divestiture agreements or other actions, as the case may be, as may be necessary
to secure the expiration or termination of the applicable waiting periods under
the HSR Act or the removal, dissolution, stay or dismissal of any temporary
restraining order, preliminary injunction or other judicial or administrative
order which prevents the consummation of the transactions contemplated hereby or
requires as a condition thereto that all or any part of the Business be held
separate and, prior to or after the Closing, pursue the underlying litigation or
administrative proceeding diligently and in good faith.
5.04 Reasonable Efforts and Cooperation.
(a) Upon the terms and subject to the provisions set forth in this
Agreement, each of the parties will use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including without limitation, (i) obtaining all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and
making all necessary registrations and filings (including filings with
Governmental Entities) and taking all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) obtaining, prior to the Effective Time, all consents,
approvals or waivers from third parties necessary to consummate the Merger,
(iii) defending any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any adverse Order
entered by any court or other Governmental Entity vacated or reversed, and (iv)
executing and delivering any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In addition, and without limiting the generality of the foregoing:
(a) the Company will cooperate with RECO to ensure that RECO continues to
qualify as a REIT following the Effective Time, including by taking actions and
engaging in transactions reasonably requested by RECO if such actions or
transactions would have no material impact on the Company or adversely affect
its shareholders and (b) the Company will use its reasonable best efforts to
obtain for the benefit of RECO or OPCO, as the case may be, and to cooperate
with RECO and OPCO in obtaining, prior to the Effective Time, all consents,
approvals, waivers and agreements as may be necessary from third parties in
order to enable
47
the RECO Companies to hold the Company's assets and to operate its business in a
manner which, in RECO's reasonable judgment, preserves RECO's status as a REIT,
maximizes the tax efficiencies associated with the RECO Companies' paired share
REIT structure, and enables the RECO Companies to implement their respective
long-term business strategies; provided, however, that in connection with
obtaining (or assisting RECO or OPCO in obtaining) any such consent, approval,
waiver or agreement, the Company will not be required (1) to incur under this
Agreement any out-of-pocket costs and expenses (except for insignificant costs
incident to compliance with this covenant) unless RECO shall have first agreed
in writing to cause the Company to be reimbursed therefor, or (2) to enter into
or amend any management or franchise agreement or other contract or incur any
liability in a manner that the Company reasonably determines is adverse to it or
its Subsidiaries. Nothing set forth in this Section 5.04(a) will limit or affect
actions permitted to be taken pursuant to Section 4.01 or 4.02.
(b) Without limiting the generality or effect of any provision of
Sections 5.03, 5.04(a) or Article VI, if any Governmental Entity having
jurisdiction over any party issues or otherwise promulgates any injunction,
decree or similar order prior to the Closing which prohibits the consummation of
the transactions contemplated hereby, the parties will use their respective
reasonable efforts to have such injunction dissolved or otherwise eliminated as
promptly as possible and, prior to or after the Closing, to pursue the
underlying litigation diligently and in good faith.
(c) In connection with and without limiting the foregoing, the
Company, RECO and OPCO will (i) take all action available to them to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger or any of the other transactions contemplated hereby,
and (ii) if any state takeover statute or similar statute or regulation becomes
applicable thereto, take all action available to them to ensure that the Merger
and such other transactions may be consummated as promptly as practicable on the
terms contemplated hereby and otherwise to minimize the effect of such statute
or regulation thereon.
5.05 Employee Benefit Matters.
(a) With respect to each RECO or OPCO "employee benefit plan," as
defined in Section 3(3) of ERISA, including plans or policies providing
severance benefits and vacation entitlement (collectively, the "RECO Plans"), if
the Effective Time occurs, service with the Company will be treated as service
with the RECO Companies for purposes of determining eligibility to participate,
vesting and entitlement to benefits (other than the accrual of benefits under
any defined benefit pension plan); provided, however, that such service will not
be recognized to the extent that such recognition would result in a duplication
of benefits. Such service also will apply for purposes of satisfying any waiting
periods, evidence of insurability requirements or the application of any
preexisting condition limitations under any RECO Plan. Employees of the Company
will be given credit under any RECO Plan in which they are eligible to
participate for amounts paid under a corresponding Company benefit plan during
the same period for purposes of applying deductibles, copayments and
out-of-pocket
48
maximums as though such amounts had been paid in accordance with the terms and
conditions of the RECO Plans.
(b) For not less than one year following the Effective Time, the RECO
Companies shall maintain compensation and employee benefits plans and
arrangements for employees of the Company and its Subsidiaries ("Affected
Employees") that are, in the aggregate, no less favorable than as provided under
the compensation arrangements and Company Benefit Plans as in effect on the date
hereof. For not less than one year following the Effective Time, RECO Companies
shall provide severance pay and benefits pursuant to the summary of severance
pay benefits set forth on Section 5.05(b) of the Company Disclosure Schedule.
Notwithstanding the foregoing, the RECO Companies shall have the right (i)
following the Effective Time to transfer to one or more employee benefit plans
maintained by the RECO Companies any employee of the Company or any Subsidiary
who becomes an employee of the RECO Companies or the Surviving Corporation and
(ii) in the good faith exercise of its managerial discretion, to terminate the
employment of any employee. Nothing in this Agreement shall be construed as
granting to any employee any rights of continuing employment or any other
enforceable rights.
(c) RECO Companies shall honor all Company Benefit Plans and other
contractual commitments in effect immediately prior to the Effective Time
between the Company or its Subsidiaries and Affected Employees or former
employees of the Company or its Subsidiaries. Notwithstanding the foregoing, the
RECO Companies shall have the right following the Effective Date to terminate
any Company Benefit Plans, subject to their obligations to pay benefits accrued
to the date of such termination and to their obligation to comply with Section
5.05(b). Without limiting the generality of the foregoing, RECO Companies shall
honor all severance benefit, vacation, holiday, sickness and personal days
accrued by Affected Employees and, to the extent applicable, former employees of
the Company and its Subsidiaries ("Former Employees") as of the Effective Time.
(d) Prior to the Effective Time, RECO shall offer to enter into
employment agreements with ▇▇▇▇▇ ▇▇▇▇▇▇ on the terms set forth on Section
5.05(d) of the Company Disclosure Schedule.
5.06 Fees and Expenses.
(a) Except as otherwise set forth in this Section 5.06, all fees and
expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated thereby and hereby will be paid by the party incurring
such fees or expenses, whether or not the Merger is consummated, except that
each of RECO and the Company will bear and pay one-half of the costs and
expenses incurred in connection with the filing, printing and mailing of the
Joint Proxy Statement (including SEC filing fees).
(b) (i) In the event that this Agreement is terminated by the Company
pursuant to Section 7.01(f), the Company will deposit into escrow for the
benefit of RECO, by wire transfer of same day funds, an amount in cash equal to
seventy-five million dollars
49
($75,000,000) (the "Company Termination Fee") with an escrow agent selected by
RECO (the "Escrow Agent") and on such terms (subject to Section 5.06(c)), as
shall be agreed upon by RECO and the Escrow Agent (the "Escrow Agreement").
(ii) In the event that (A) a Company Takeover Proposal is made
public, or any Person publicly announces an intention (whether or not
conditional) to make a Company Takeover Proposal, after the date of this
Agreement (and such proposal has not been withdrawn prior to the Company
Shareholder Meeting), and thereafter (x) this Agreement is terminated by either
RECO or the Company pursuant to Section 7.01(b)(i) or 7.01(b)(ii) and (y) prior
to the date that is 12 months after the date of such termination the Company
enters into a Company Acquisition Agreement or an Alternative Transaction (as
defined below) occurs, or (B) this Agreement is terminated by RECO pursuant to
Section 7.01(c), the Company will deposit with the Escrow Agent pursuant to the
Escrow Agreement for the benefit of RECO by wire transfer of same-day funds, an
amount in cash equal to the Company Termination Fee.
(iii) As used in this Agreement, (A) "Alternative Transaction" means:
(x) a transaction other than a Private Transaction pursuant to which any Third
Party (as defined below) acquires more than 25% of the shares of Company Common
Stock pursuant to a tender offer or exchange offer or otherwise, (y) a merger or
other business combination involving the Company or any of its Affiliates
pursuant to which any Third Party acquires more than 25% of the shares (after
giving effect to such business combination) of Company Common Stock or of the
entity surviving such merger or business combination, or (z) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the equity securities of Subsidiaries of the Company
and the entity surviving any merger or business combination including any of
them) of the Company having a fair market value equal to more than 25% of the
fair market value of all the assets of the Company and its Subsidiaries, taken
as a whole, immediately prior to such transaction, (B) "Third Party" means any
Person other than RECO, OPCO or an Affiliate of either of them, and (C) "Private
Transaction" means a single privately negotiated sale (directly or indirectly)
by a Company shareholder to a Third Party of shares aggregating in excess of 25%
of the shares of Company Common Stock which shares were beneficially owned by
such shareholder on the date of this Agreement.
(iv) If any termination described in Section 5.06(b)(i) or Section
5.06(b)(ii)(B) occurs, the Company Termination Fee will be deposited immediately
prior to and as a condition to the effectiveness of such termination. If any
termination described in Section 5.06(b)(ii)(A) occurs, the Company Termination
Fee will thereafter be deposited immediately prior to the first to occur of (A)
the entry by the Company into a Company Acquisition Agreement or (B) an
Alternative Transaction (in either case within 12 months after the date of such
termination).
(v) The Company acknowledges that the agreements contained in this
Section 5.06(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, RECO and OPCO would not enter
into this Agreement; accordingly, if the Company fails promptly to deposit the
amount due pursuant to this Section
50
5.06(b), and, in order to obtain such payment, RECO or OPCO commences a suit
which results in a judgment against the Company for the fee set forth in this
Section 5.06(b), the Company will pay to RECO and OPCO their costs and expenses
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made,
provided that payment of such costs, expenses and interest shall be subject to
the limitations of Section 5.06(c) (determined as if such expenses were included
in the Company Termination Fee).
(c) In the event that the Company is obligated to deposit with the
Escrow Agent the Company Termination Fee as provided in Section 5.06(b), the
Escrow Agent will pay to RECO from the Company Termination Fee deposited into
escrow an amount equal to the lesser of (i) the Company Termination Fee and (ii)
the sum of (A) the maximum amount that can be paid to RECO without causing RECO
to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
determined as if the payment of such amount did not constitute income described
in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(i) of the Code ("Qualifying
Income"), as determined by RECO's certified public accountant, plus (B) in the
event RECO receives either (1) a letter from RECO's counsel indicating that RECO
has received a ruling from the IRS as described below or (2) an opinion from
RECO's counsel as described below, an amount equal to the Company Termination
Fee less the amount payable under clause (A) above. The Escrow Agreement will
provide that the Company Termination Fee in escrow or any portion thereof shall
not be released to RECO unless the Escrow Agent receives any one or combination
of the following: (x) a letter from RECO's certified public accountants
indicating the maximum amount that can be paid by the Escrow Agent to RECO
without causing RECO to fail to meet the requirements of Sections 856(c)(2) and
(3) of the Code determined as if the payment of such amount did not constitute
Qualifying Income or a subsequent letter from RECO's accountants revising that
amount, in which case the Escrow Agent will release such amount to RECO, or (y)
a letter from RECO's counsel indicating that RECO received a ruling from the IRS
holding that the receipt by RECO of the Company Termination Fee would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Section 856(c)(2) and (3) of the Code (or alternatively, RECO's legal
counsel has rendered a legal opinion to RECO to the effect that the receipt by
RECO of the Company Termination Fee would either constitute Qualifying Income or
would be excluded from gross income within the meaning of Sections 856(c)(2) and
(3) of the Code), in which case the Escrow Agent will release the remainder of
the Company Termination Fee to RECO. The Company agrees to amend this Section
5.06 at the request of RECO as may reasonably be necessary (and without
substantial additional cost or burden to the Company) in order to (I) maximize
the portion of the Company Termination Fee that may be distributed to RECO
hereunder without causing RECO to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code, (II) improve RECO's chances of securing a
favorable ruling described in this Section 5.06(c), or (III) assist RECO in
obtaining a favorable legal opinion from its counsel as described in this
Section 5.06(c); provided that RECO's legal counsel has rendered a legal opinion
to RECO to the effect that such amendment would not cause RECO to fail to meet
the requirements of Section 856(c)(2) or (3) of the Code. The Escrow Agreement
will also provide that any portion of the Company Termination Fee held in escrow
for 15 years will be
51
released by the Escrow Agent to the Company. The Company will not bear any cost
of or have liability resulting from the Escrow Agreement.
(d) In the event that this Agreement is terminated by the Company
pursuant to Section 7.01(d), RECO will immediately pay the Company a fee equal
to seventy-five million dollars ($75,000,000) payable by wire transfer of
same-day funds. RECO acknowledges that the agreements contained in this Section
5.06(d) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, the Company would not enter into this
Agreement; accordingly, if RECO fails promptly to pay the amount due pursuant to
this Section 5.06(d), and, in order to obtain such payment, the Company
commences a suit which results in a judgment against RECO or OPCO for the fee
set forth in this Section 5.06(d), RECO will pay to the Company its costs and
expenses (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
5.07 Public Announcements. RECO and the Company will consult with
each other before issuing, and provide each other the opportunity to review,
comment upon and concur with, any press release or other written public
statements with respect to the transactions contemplated by this Agreement, and
will not issue any such press release or make any such public statement prior to
such consultation, except as either party may determine is required by
applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement will be in the form heretofore agreed to by the parties.
Notwithstanding the foregoing, each of the parties hereto shall be permitted to
make press releases in the ordinary course, including those which refer
generally to the pendency of the transaction. The parties further agree that (i)
the Company shall not participate in any formal presentations to rating agencies
(e.g. ▇▇▇▇▇'▇), with respect to this Agreement, the Subscription Agreement, the
Shareholders' Agreement or the transactions contemplated hereby and thereby
without providing the RECO Companies with (a) reasonable prior notice of such
formal presentation and (b) the opportunity, if desired, to participate in such
formal presentation, and (ii) the Company shall not distribute or make available
any written materials to any rating agencies with respect to this Agreement, the
Subscription Agreement, the Shareholders' Agreement or the transactions
contemplated hereby and thereby without the prior consent of RECO.
5.08 Affiliates; Etc.
(a) Prior to the Closing Date, the Company will deliver to RECO a
letter identifying all Persons who are, at the time this Agreement is submitted
for adoption by to the shareholders of the Company, "affiliates" of the Company
for purposes of Rule 145 under the Securities Act. The Company will use all
reasonable efforts to cause each such Person to deliver to RECO on or prior to
the Closing Date a written agreement substantially in the form attached as
Schedule 5.08(a) hereto.
52
(b) Registration Rights. Effective as of the Effective Time, RECO and
OPCO shall have entered into, or agreed to enter into, the Registration Rights
Agreements contemplated by the Shareholders Agreement.
5.09 Listing of Paired Shares. Each of RECO and OPCO will use all
reasonable efforts to cause the Paired Shares to be issued in the Merger and
under the Company Stock Plans to be approved prior to the Effective Time for
listing on the NYSE, subject to official notice of issuance.
5.10 Shareholder Litigation. Each of the Company, RECO and OPCO will
give the other the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company, RECO or OPCO, as applicable, or
their respective directors or officers relating to the transactions contemplated
by this Agreement.
5.11 Tax Treatment. Each of RECO, the Company and OPCO will use
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368 of the Code.
5.12 Indemnification, Exculpation and Insurance.
(a) All rights to indemnification and, to the extent applicable,
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time existing in favor of the current or former directors or officers
of the Company or each of its Subsidiaries as provided in their respective
certificates of incorporation or bylaws (or comparable organizational documents)
and existing indemnity contracts will be assumed by RECO and RECO will be
directly responsible for such indemnification, without further action, as of the
Effective Time and will continue in full force and effect in accordance with
their respective terms for a period not less than six years from the Effective
Time. In addition, from and after the Effective Time, directors and officers of
the Company who become or remain directors or officers (if any) of any
Subsidiary thereof will be entitled (with respect to acts or omissions occurring
after the Effective Time) to the same indemnity rights and protections
(including those provided by directors' and officers' liability insurance) as
are afforded to directors and officers of RECO, OPCO or such Subsidiary, as the
case may be. Notwithstanding any other provision hereof, the provisions of this
Section 5.12 (i) are intended to be for the benefit of, and will be enforceable
by, each indemnified party, his or her heirs and his or her legal
representatives and (ii) are in addition to, and not in substitution for, any
other rights to indemnification or contribution that any such person may have by
contract or otherwise.
(b) RECO will maintain in effect for not less than six years after
the Effective Time one or more policies of directors' and officers' liability
insurance that provide coverage for the current directors and officers of the
Company that is substantially similar to that provided by the policies
maintained by or on behalf of the Company and its Subsidiaries on the date
hereof with respect to matters existing or occurring at or prior to the
Effective Time; provided, however, that if the aggregate annual premiums (which
premiums the Company represents and warrants to be approximately $315,000 in the
aggregate) for such
53
insurance at any time during such period exceed 150% of the per annum rate of
premium currently paid by the Company and its Subsidiaries for such insurance on
the date of this Agreement, then RECO will cause the Surviving Corporation to,
and the Surviving Corporation will, provide the maximum coverage that will then
be available at an annual premium equal to 150% of such rate.
5.13 Ownership Restrictions. The Company will cooperate with RECO to
determine whether the issuance of Paired Shares pursuant to the Merger will
violate the provisions in RECO's or OPCO's Certificate of Incorporation, as
amended, or By-laws, as amended, restricting the amount of RECO Common Stock or
OPCO Common Stock, as the case may be, that may be held (directly, indirectly or
by attribution) by any Person.
5.14 Termination of Stock Purchase Plan. If required by RECO, the
Company will cause the Stock Option Plans to be terminated on or prior to the
Closing Date.
5.15 Private Letter Ruling. As soon as reasonably practicable after
the execution of this Agreement, RECO shall request from the IRS a private
letter ruling (the "Ruling") concerning the Independent Contractor Issue (as
defined below). For purposes hereof, the term "Independent Contractor Issue"
shall mean a conclusion by the IRS substantially to the effect that rental
income received by RECO or a RECO subsidiary from OPCO or an OPCO subsidiary
with respect to real estate owned or leased by RECO or a RECO Subsidiary (the
"Owned Real Estate") will constitute "rents from real property," as such term is
defined in Section 856(d) of the Code, even though a direct or indirect
subsidiary of RECO provides services to OPCO or an OPCO Subsidiary with respect
to the Owned Real Estate pursuant to management contracts. If either (A) the
Ruling is obtained prior to the Effective Time, or (B) RECO determines, in its
sole discretion, to accept a legal opinion of ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP
regarding the Independent Contractor Issue prior to the Effective Time, then the
Company, RECO and OPCO agree that the Merger and all related transactions
contemplated by this Agreement shall be effected, subject to the provisions of,
and in the manner set forth in, this Agreement, subject to such modifications as
to which the Company, RECO and OPCO may hereafter agree. If the Ruling is not
obtained prior to the Effective Time and RECO elects not to accept a legal
opinion of ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, unless the Company, RECO and OPCO
otherwise agree, (i) the Company shall, immediately prior to the Effective Time,
sell, transfer and convey all assets of the Company used or to be used in the
management of the Owned Real Estate (the "Company Management Assets") to OPCO,
(ii) at RECO's election, and subject to satisfaction of the general requirements
of Section 338 of the Code, such sale, transfer or conveyance shall be treated
under Section 338(h)(10) of the Code, and (iii) the Merger and all related
transactions contemplated by this Agreement shall be effected in the manner set
forth in this Agreement in all other respects; provided, however, that (x) any
inability of the Company to satisfy any condition to the Merger set forth in
Section 6.02 of this Agreement arising solely as a result of the foregoing
actions shall not be deemed a failure of such condition to the consummation of
the Merger, (y) notwithstanding the foregoing actions, RECO shall continue to
remain liable hereunder for the satisfaction of any of its obligations
hereunder, and (z) the foregoing actions shall enable the Merger to continue to
qualify as, or be treated as part of, one or more tax-free
54
reorganizations within the meaning of Section 368(a) of the Code with the
exception of the sale of any assets by the Company to OPCO, RECO or any of their
respective affiliates which would enable RECO and OPCO to maximize the economic
and tax advantages associated with the paired-share structure, including without
limitation the transactions contemplated by this Section 5.15 hereof. The
parties hereto agree that they will execute, and will cause their respective
direct and indirect subsidiaries to execute such agreements and documents and
such amendments to this Agreement and any related documents as shall be
appropriate in order to reflect such revised structure.
5.16 Reorganization.
(a) From and after the date hereof and until the Effective Time, none
of the Company, OPCO or RECO or any of their respective Subsidiaries or other
affiliates shall knowingly take any action, or knowingly fail to take any
action, that would cause the Merger not to qualify as a reorganization within
the meaning of Section 368(a) of the Code.
(b) If and to the extent so requested by RECO, and subject to receipt
of the consents referred to in Section 5.16(b) of the Company Disclosure
Schedule, and subject to the Company's reasonable judgment that all other
conditions to the Closing have been, or will be, satisfied or waived, the
Company agrees that prior to the Closing Date, all direct or indirect
Subsidiaries of the Company holding "real estate assets" within the meaning of
Section 856 of the Code will be liquidated such that the Company holds all such
assets, except as otherwise provided on Section 5.16(b) of the Company
Disclosure Schedule; provided, however, that (i) any inability of the Company to
satisfy any condition to the Merger set forth in Section 6.02 of this Agreement
arising solely as a result of the foregoing actions shall not be deemed a
failure of such condition to the consummation of the Merger, (ii)
notwithstanding the foregoing actions, RECO shall continue to remain liable
hereunder for the satisfaction of any of its obligations hereunder, and (iii)
the foregoing actions shall enable the Merger to continue to qualify as, or be
treated as part of, one or more tax-free reorganizations within the meaning of
Section 368(a) of the Code with the exception of the sale of any assets by the
Company to OPCO, RECO or any of their respective affiliates which would enable
RECO and OPCO to maximize the economic and tax advantages associated with the
paired-share structure, including without limitation the transactions
contemplated by this Section 5.16 hereof. The parties hereto agree that they
will execute, and will cause their respective direct and indirect subsidiaries
to execute such agreements and documents and such amendments to this Agreement
and any related documents as shall be appropriate in order to reflect such
revised structure.
5.17 Retirement of Debt. Unless requested otherwise by RECO, the
Company shall use its best efforts to redeem the Company's 9-1/4% Senior
Subordinated Unsecured Notes, due 2003, with a principal balance of $120
million, which were issued pursuant to the Indenture dated as of May 15, 1993
promptly following the date during May 1998 on which such notes become
redeemable by the Company.
55
5.18 Consents. The parties hereby agree that, with respect to
obtaining the consents and waivers required under the Company Material
Agreements to consummate the transactions contemplated by this Agreement, RECO
shall have control over the procedure by which and the terms on which such
consents and waivers are obtained.
VI. CONDITIONS PRECEDENT
6.01 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein is subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions, any or all of which may
be waived, in whole or in part by the parties hereto, to the extent permitted by
applicable law:
(a) Shareholder Approval. Each of the Company Shareholder Approval
and the RECO/OPCO Shareholder Approvals shall have been obtained;
(b) No Injunctions or Restraints. No Order or Law enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction or other
Governmental Entity or other legal restraint or prohibition (collectively,
"Restraints") preventing the consummation of the Merger shall be in effect;
(c) HSR Act. Any waiting period under the HSR Act applicable to the
Merger shall have expired or been terminated;
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order;
(e) Tax Opinions.
(i) ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, counsel to the RECO Companies, shall
have delivered to RECO, an opinion, and ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel to the
Company, shall have so delivered to the Company such an opinion, dated as of the
Closing Date, to the effect that, based upon representations, assumptions and
conditions customary for transactions such as the Merger, the Merger should be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and that RECO and the Company will each be a party
to such reorganization within the meaning of Section 368(b) of the Code.
(ii) On the Closing Date, the opinion of ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP,
counsel to the RECO Companies, shall have been delivered to the Company in form
and substance reasonably satisfactory to the Company stating that (i) RECO has
since November 5, 1997 been and is a "real estate investment trust" for federal
income tax purposes and (ii) RECO's proposed method of operation, including the
consummation of the transactions
56
contemplated by this Agreement, will allow RECO to continue to qualify as a
"real estate investment trust" for federal income tax purposes. In rendering
such opinion, such counsel shall be entitled to rely upon customary
representations reasonably requested by such counsel and made by the RECO
Companies and appropriate assumptions, including, but not limited to an
assumption that the opinions of counsel of Meditrust Corporation and Santa
▇▇▇▇▇, dated November 5, 1997, rendered to the RECO Companies (or their
predecessors) as to the qualification of RECO (and its predecessors) as a "real
estate investment trust" for federal income tax purposes for the period of time
through the effective time of the merger of Meditrust Corporation with and into
Santa ▇▇▇▇▇, effected November 5, 1997, are correct;
(f) Listing of Paired Shares. The Paired Shares issuable to the
Company's shareholders pursuant to this Agreement and under the Company Stock
Plans shall have been approved for listing on the NYSE, subject to official
notice of issuance; and
(g) Change in Tax Laws. There shall not have been any federal
legislative or regulatory change that would cause RECO to cease to qualify
(either immediately before or immediately after the consummation of the Merger)
as a paired-share "real estate investment trust" for federal income tax
purposes.
6.02 Conditions to Obligations of RECO and OPCO. The obligation of
RECO and OPCO to effect the Merger is further subject to satisfaction or waiver
on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company in this Agreement, including without limitation in
Section 3.01 hereof, that are qualified as to materiality shall be true and
correct, and each of the representations and warranties of the Company in this
Agreement, including without limitation in Section 3.01 hereof, that are not so
qualified shall be true and correct in all material respects, in each case as of
the Closing Date as if made anew on such date, except for representations and
warranties made as of a specified date (which shall be true and correct in all
material respects (except for those qualified as to materiality, which shall be
true and correct) as of such specified date);
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and RECO shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect;
(c) No Company Material Adverse Effect. At any time after the date of
this Agreement there shall not have occurred any event which, individually or
when considered with any other such event, could reasonably be expected to
result in a Company MAE;
(d) Letters from Company Affiliates. RECO shall have received from
each person named in the letter referred to in Section 5.08(a) an executed copy
of an agreement
57
substantially in the form of Schedule 5.08(a) hereto;
(e) Certain Consents. Except as otherwise set forth in Section
6.02(e) of the Company Disclosure Schedule, the Company shall have received to
RECO's reasonable satisfaction any consent to the consummation of the Merger the
absence of which, individually or in the aggregate, would have a Company MAE or,
following consummation of the Merger, a RECO MAE, as a result of a failure to so
obtain any such consent; provided, however, that the Company shall not be
obligated to obtain the consents required to consummate any transaction (other
than the Merger) contemplated by Sections 1.09 or 5.15 hereof, provided, further
that the failure to obtain any consent set forth on Section 3.01(d) of the
Company Disclosure Schedule shall not be a condition to the consummation of the
Merger;
(f) E&P Certification. The Company and RECO shall have obtained the
certification of the earnings and profits calculation from KPMG as provided in
Section 4.03 in a form reasonably acceptable to RECO, and such certification
shall have been revised by KPMG to include the earnings and profits actually
generated between the date of the original certification pursuant to Section
4.03 and the most recent date through which the earnings and profits are
ascertainable as well as a reasonable estimate of any earnings and profits from
such most recent date through the Closing Date, and Coopers & ▇▇▇▇▇▇▇ LLP shall
have reviewed and approved in the exercise of its reasonable judgment the
certification and workpapers of KPMG; and
(g) Compliance with Shareholders Agreement. The Principal
Shareholders shall have complied in all material respects with their obligations
under the Shareholders Agreement.
6.03 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of RECO and OPCO in this Agreement, including without limitation in
Section 3.02 hereof, that are qualified as to materiality shall be true and
correct, and each of the representations and warranties of the RECO Companies in
this Agreement, including without limitation in Section 3.02 hereof, that are
not so qualified shall be true and correct in all material respects, in each
case as of the Closing Date as if made anew on such date, except for
representations and warranties made as of a specified date (which shall be true
and correct in all material respects (except for those qualified as to
materiality, which shall be true and correct) as of such specified date);
(b) Performance of Obligations of RECO and OPCO. RECO and OPCO shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date, including, without
limitation, the declaration of the E&P Distribution, and the Company shall have
received a certificate signed
58
on behalf of RECO by the chief executive officer and the chief financial officer
of RECO to such effect; and
(c) No RECO Material Adverse Effect. At any time after the date of
this Agreement there shall not have occurred any event which, individually or
when considered with any other such event, could reasonably be expected to
result in a RECO MAE.
6.04 Frustration of Closing Conditions. Neither RECO nor the Company
may rely on the failure of any condition set forth in Section 6.01, 6.02 or
6.03, as the case may be, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to commence or complete the Merger and
the other transactions contemplated by this Agreement, as required by and
subject to Section 6.03.
VII. TERMINATION, AMENDMENT AND WAIVER
7.01 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after Company Shareholder Approval or
RECO/OPCO Shareholder Approvals:
(a) by mutual written consent of RECO and the Company;
(b) by either RECO or the Company:
(i) if the Merger has not been consummated by July 31, 1998;
provided, however, that the right to terminate this Agreement pursuant to this
Section 7.01(b)(i) will not be available to any party whose failure to perform
any of its obligations under this Agreement results in the failure of the Merger
to be consummated by such time;
(ii) if the Company Shareholder Approval shall not have been obtained
at a Company Shareholder Meeting duly convened therefor or at any adjournment or
postponement thereof;
(iii) if the RECO/OPCO Shareholder Approvals shall not have been
obtained at RECO/OPCO Shareholder Meetings duly convened therefor or at any
adjournment or postponement thereof; or
(iv) if any Governmental Entity shall have issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger or any of the other transactions
contemplated by this Agreement and such Restraint or other action shall have
become final and nonappealable;
(c) by RECO, if the Company Board or any committee thereof shall have
(i) withdrawn, modified or amended in a manner adverse to RECO its approval or
59
recommendation of the Merger or this Agreement, (ii) failed to include such
recommendation in the Joint Proxy Statement, (iii) approved or recommended, or
proposed publicly to approve or recommend, any Company Takeover Proposal other
than the Merger, or (iv) caused the Company to enter into a Company Acquisition
Agreement;
(d) by the Company, if the RECO Board or the OPCO Board or any
committee of either of them thereof shall have (i) withdrawn, modified or
amended in a manner adverse to the Company its approval or recommendation of the
Merger or this Agreement, or (ii) failed to include such recommendation in the
Joint Proxy Statement;
(e) by the Company, if RECO or OPCO shall have breached or failed to
perform in any material respect any of its representations, warranties or
covenants required to be performed by them under this Agreement, which breach or
failure to perform cannot be or has not been cured within 30 days after the
giving of written notice to RECO and OPCO of such breach (provided that the
Company is not then in material breach of any representation, warranty, covenant
or other agreement contained in this Agreement that cannot or has not been cured
within 30 days after giving notice to the Company of such breach);
(f) by the Company in accordance with Section 4.02(b), provided that
it has complied with all provisions of Section 4.02;
(g) by the Company pursuant to 2.01(d)(v) or 2.01(d)(vi); and
(h) by RECO, if the Company shall have breached or failed to perform
in any material respect any of its representations, warranties or covenants
required to be performed by it under this Agreement, which breach or failure to
perform cannot be or has not been cured within 30 days after the giving of
written notice to the Company of such breach (provided that neither RECO nor
OPCO is then in material breach of any representation, warranty, covenant or
other agreement contained in this Agreement that cannot or has not been cured
within 30 days after giving notice to RECO of such breach).
7.02 Effect of Termination. In the event of termination of this
Agreement by either the Company or RECO as provided in Section 7.01, this
Agreement, other than the provisions of Section 3.01(k), Section 3.02(j),
Section 5.02, Section 5.06, this Section 7.02 and Article VIII, will forthwith
become void and have no effect, without any liability or obligation on the part
of RECO, the Company or OPCO, except to the extent that such termination results
from the willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
7.03 Amendment. This Agreement may be amended by the parties at any
time before or after the Company Shareholder Approval or the RECO/OPCO
Shareholder Approvals; provided, however, that, after any such approval, there
may not be made any amendment that by Law requires further approval by the
shareholders of the Company, RECO or OPCO without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
60
7.04 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreements
or in any document delivered pursuant to this Agreement, or (c) subject to the
proviso of Section 7.03, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver will be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
will not constitute a waiver of such rights.
7.05 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 will, in order to be effective, require, in the case of RECO, OPCO or the
Company, action by its Board of Directors or a duly authorized committee
thereof.
VIII. GENERAL PROVISIONS
8.01 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement will survive the Effective Time. This Section 8.01
will not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
8.02 Notices. All notices, requests, claims, demands and other
communications under this Agreement will be in writing and will be deemed given
if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as specified by like notice):
(a) if to RECO, to:
Meditrust Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
with copies to:
▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C. and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
61
(b) if to OPCO, to:
Meditrust Operating Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
with copies to:
▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C. and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(c) if to the Company, to:
La Quinta Inns, Inc.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇., Esq.
8.03 Certain Definitions. For purposes of this Agreement:
(a) An "Affiliate" of any Person means another Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first Person;
(b) a "Subsidiary" of any Person means another Person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person. A "Significant Subsidiary" means any subsidiary of the Company or RECO,
as the case may be, that would constitute a "significant subsidiary" of such
party within the meaning of Rule 1-02 of Regulation S-X of the SEC;
62
(c) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(d) "Knowledge" of any Person which is not an individual means the
knowledge of any of such Person's executive officers (as listed in the last
proxy statement or registration statement of such Person filed with the SEC or,
if any such listed officer is no longer employed by such Person, the successor
to such officer's responsibilities) after reasonable inquiry.
8.04 Interpretation. When a reference is made in this Agreement to an
Article, Section, Annex or Exhibit, such reference will be to an Article or
Section of, or an Annex or Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement will refer to this Agreement
as a whole and not to any particular provision of this Agreement. All terms used
herein with initial capital letters have the meanings ascribed to them herein
and all terms defined in this Agreement will have such defined meanings when
used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns.
8.05 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
8.06 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein), and the
confidentiality agreements previously executed between the parties hereto (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article II
and Section 5.12 are not intended to confer upon any Person other than the
parties any rights or remedies.
63
8.07 Governing Law. This Agreement will be governed by, and construed
in accordance with, the Laws of the State of Delaware regardless of the Laws
that might otherwise govern under applicable principles of conflict of Laws
thereof.
8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence will be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
8.09 Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court of the District
of Delaware or in Delaware state court, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of any
federal court located in the District of Delaware or any Delaware state court in
the event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any court
other than a federal court sitting in the State of Delaware or a Delaware state
court.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, RECO, OPCO and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
MEDITRUST CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
MEDITRUST OPERATING COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Secretary
LA QUINTA INNS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇
Title: President and Chief
Executive Officer