EXHIBIT 5
AGREEMENT RESPECTING LESSEE UNIT PURCHASE
THIS AGREEMENT RESPECTING LESSEE UNIT PURCHASE (the "Agreement"), is made
and executed as of this 16th day of August, 1995 by and among (i) Sunstone Hotel
Investors, Inc., a Maryland corporation (the "Company"), (ii) Sunstone Hotel
Investors, L.P., a Delaware limited partnership of which the Company is the sole
general partner (the "Partnership"), (iii) ▇▇▇▇▇▇ ▇. Alter and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
(collectively, the "Lessee Shareholders") and (iv) Sunstone Hotel Properties,
Inc., a Colorado corporation ("Lessee").
WHEREAS, Mr. Alter and ▇▇. ▇▇▇▇▇▇▇▇▇, respectively, own 80% and 20%,
respectively of the outstanding stock in the Lessee, which is the lessee of all
of the hotels now owned by the Partnership;
WHEREAS, Mr. Alter and ▇▇. ▇▇▇▇▇▇▇▇▇ desire to minimize any potential or
perceived conflict between their interests in the Lessee and their interests in
the Company and/or the Partnership through a commitment to invest, annually, the
net after-tax amount of the cash distributions, if any, received by the Lessee
Shareholders in Units of limited partnership interests in the Partnership
("Units") in compliance with all applicable securities laws, at the then current
Market Price (as defined below); and
WHEREAS, the Independent Directors (as defined below) of the Company
believe that it is in the best interests of the Company and its shareholders,
and of the Partnership and its partners, that the Partnership agrees to sell
Units to the Lessee Shareholders upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements of the parties set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
all parties hereto, the parties hereto do hereby agree as follows:
1. Purchase and Sale.
(a) Except as otherwise provided to the contrary in Sections 1(b) and
5, on April 15, 1996 and on each April 15 thereafter during the term of this
Agreement, the Lessee Shareholders agree to purchase from the Partnership, and
the Partnership agrees to sell to the Lessee Shareholders, that number of Units,
having an aggregate Market Price (as defined below) most nearly equal to the
aggregate Net After-Tax Distributions (as defined below), if any, received by
the Lessee Shareholders from Lessee during the immediately preceding calendar
year.
(b) Notwithstanding anything in this Agreement to the contrary, the Lessee
Shareholders acting together shall have the right to elect at any time upon
prior written notice to the Independent Directors of the Company delivered on or
prior to April 15 of each year not to purchase from the Partnership any such
Units. Such period is referred to as the "Unit
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Purchase Exception Period," subject to the following conditions: (i) Lessee
shall be prohibited from making any distributions or paying any dividends to one
or more of the Lessee Shareholders during the Unit Purchase Exception Period
other than the amount necessary to pay taxes calculated in accordance with the
first sentence of Section 3 below, (ii) all such sums which would otherwise be
used by the Lessee Shareholders to acquire Units pursuant to this Agreement
shall be held as reserves for rent payment obligations under the Percentage
Leases executed by the Lessee in favor of the Company and for the payment of
such rental obligations, (iii) such funds shall not be used for any other
purpose or as security for any other obligation or undertaking by Lessee or the
Lessee Shareholders (or either of them), and (iv) such funds are invested in
investments permitted under the Partnership Agreement for the Partnership's
investments.
2. Determination of Market Price. For purposes of this Agreement, the
term "Market Price" shall have the meaning assigned to such term in the Amended
Articles of Incorporation of the Company (the "Articles"), as such Articles are
in effect on the date hereof. For purposes of this Agreement, the Market Price
for Units shall be deemed to be equal to the Market Price (as defined in the
Amended Articles of Incorporation of the Company, as amended from time to time)
for the Common Stock of the Company.
3. Determination of Net After-Tax Distributions. For purposes of this Agreement,
the term "Net After-Tax Distributions," with respect to each calendar year,
shall mean and refer to the aggregate cash dividends and other cash
distributions made by Lessee, on or in respect of the equity interests therein,
to the Lessee Shareholders that are declared during, and are paid during or
within thirty (30) days following the end of, such calendar year (collectively,
the "Distributions") minus the sum of the aggregate federal, state and local
income taxes (or other taxes, however designated, that are based upon income)
payable directly (i) by either of the Lessee Shareholders for such calendar year
in respect of the Distributions and/or the taxable income of Lessee for such
calendar year allocated to such Lessee Shareholder, computed as if such
Distributions and/or allocated taxable income were the only distributions and/or
taxable income received by the Lessee Shareholders during such calendar year, or
(ii) by the Lessee for any calendar year in which the Lessee pays federal, state
or local income taxes. Each of the Lessee Shareholders shall deliver to the
Independent Directors, on or before April 1, 1996 and April 1 of each calendar
year thereafter during the term of this Agreement, a duly notarized certificate
setting forth the computation and amount of Net After-Tax Distributions
applicable to each such Lessee Shareholder. Each of the Lessee Shareholders
shall deliver, and shall cause Lessee to deliver, to the Independence Directors
copies of all federal, state and local income tax returns and reports prepared
and filed by Lessee for each calendar year during the term of this Agreement,
promptly following the filing thereof. The Independent Directors shall be
entitled to conclusively rely upon the information contained in such notarized
certificates and income (or similar) tax returns, but shall have the right to
make such other or further inquiry of the Lessee Shareholders and of Lessee as
they may deem necessary or appropriate and the Lessee Shareholders shall, and
each of the Lessee Shareholders shall cause Lessee, to cooperate in and to
furnish upon demand any other or further documents or information that may be
reasonably requested by the Independent Directors for the purposes of
determining the Net After-Tax Distributions. The information contained in such
notarized certificates, income (or similar)
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tax returns and reports, and in any additional documents so furnished shall be
used by the Independent Directors solely for the purpose of determining or
confirming the amount of Net After-Tax Distributions for purposes of this
Agreement and for no other purpose whatsoever, and the Independent Directors
shall not disclose any such notarized certificate, any income (or similar) tax
return or report, or any other document furnished for such purpose by the Lessee
Shareholders or by the Lessee, or any of the contents thereof, to any third
person whatsoever, except pursuant to a subpoena or other order, reasonably
believed to be valid, issued by a court or regulatory body having the power to
issue such subpoenas or orders.
4. Independent Directors. For purposes of this Agreement, the term
"Independent Directors" shall have the meaning set forth in the Amended Articles
of Incorporation of the Company. Any action required or permitted to be taken by
the Independent Directors with respect to this Agreement shall be effective when
taken or approved by a majority of the Independent Directors.
5. Temporary Suspension, Deferral or Termination of Obligations
Hereunder.
(a) The Independent Directors, for any reason whatsoever, may
temporarily suspend the obligation of the Partnership to sell any Units, as of
any given April 15th during the term of this Agreement, upon written notice to
Lessee Shareholders, given not less than five (5) days prior to such April 15th.
In the event of any such suspension with respect to a given April 15th, none of
the Lessee Shareholders thereafter shall have any right or obligation to
purchase Units based upon the Net After-Tax Distributions of Lessee with respect
to that particular calendar year ended immediately preceding such April 15th.
During the term of this Agreement, the Independent Directors may subsequently
reinstate the obligation of the Partnership to sell Units pursuant to the terms
of Section 1 of this Agreement and, in such event, the Lessee Shareholders shall
have the obligations set forth in Section 1 of this Agreement.
(b) If, on or before April 15, 1996, or on or before any April 15th thereafter
during the term of this Agreement (except for any such date as to which the
obligation of the Partnership to sell Units hereunder has been suspended as
provided in Section 5(a) above), the Lessee Shareholders shall have been given
written notice of a default on their part of any provision under this Agreement
or any other agreement entered into by and between the Company (or any
Affiliate, as defined in Section 13 of this Agreement, of the Company) and any
of the Lessee Shareholders (or any Affiliate of a Lessee Shareholder) and such
default shall not have been cured by the Lessee Shareholders (or such
Affiliate), to the reasonable satisfaction of the Independent Directors of the
Company, as of such April 15th, then the obligation of the Partnership to sell
Units to the Lessee Shareholders under this Agreement, and the closing date of
the sale scheduled for such date, shall be deferred, without further notice,
until such default shall have been cured to the satisfaction of the Independent
Directors of the Company, but neither the existence nor continuance of any such
default shall relieve the Lessee Shareholders of the obligation to purchase such
Units pursuant to the terms of this Agreement. In the event that the closing of
any sale of Units under this Section 5 shall be deferred by virtue of a default
by the Lessee Shareholders in accordance with this Section 5(b), the aggregate
Market Price of the Units obligated to be purchased by such defaulting party, as
of the originally scheduled
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purchase date, shall be increased by an amount equal to simple interest accruing
on such original aggregate Market Price at a rate equal to the lesser of 12% per
annum or the maximum rate allowable by law from the originally scheduled
purchase date to the date upon which all such defaults have been cured as herein
provided by the Lessee Shareholders by closing on the acquisition of the
applicable Units.
(c) The Independent Directors, in their sole discretion, may
terminate this Agreement, without the payment of any compensation, or the
incurring of any liability (either individually or on the part of the Company
and/or the Partnership), to the Lessee Shareholders (or either of them), upon
written notice to the Lessee Shareholders (or either of them) given not less
than ten (10) days' prior to the effective date of such termination. This
Agreement shall automatically terminate, without notice, upon the tenth
anniversary of the date hereof (or such later period as the Independent
Directors may elect in their discretion in order that the term of this Agreement
shall be coterminous with the term of any Percentage Lease to which the Lessee
is a party). Notwithstanding anything herein to the contrary, no termination of
this Agreement pursuant to this Section 5(c) or otherwise, shall diminish,
terminate or otherwise affect the rights and obligations of the parties hereto
with respect to the closing of any purchase and sale of Units theretofore
deferred pursuant to Section 5(b) hereof.
6. Representations, Warranties and Agreements. Each of the Lessee
Shareholders does hereby represent and warrant to, and agree with, the Company
that:
(a) such person is an "Accredited Investor," as that term is
defined in Rule 501 of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act"), that it has such knowledge, experience and
information relating to an investment in the Partnership that such person
is capable of evaluating the merits and risks of such investment, that such
investment is suitable for such person, and that such person shall acquire
the Units to be purchased by such person hereunder for such person's own
account and without any view of the distribution thereof;
(b) such person will furnish to the Company and/or the
Partnership, at any time and from time to time, any and all information
reasonably requested by the Company and/or the Partnership for purposes of
satisfying the Company and/or the Partnership that any sale of Units by the
Partnership hereunder may be effected in reliance upon one or more
exemptions from the registration requirements of the Securities Act and
applicable state securities laws;
(c) such person is aware that the Company and/or the Partnership
will be relying upon one or more exemptions from the registration
requirements of the Securities Act and applicable state securities laws in
effecting the sale of securities to such person pursuant hereto, that
neither the Company nor the Partnership shall be under any obligation to
register any Units, or take any other action to permit the sale thereof to
the Lessee Shareholders, or to permit or facilitate any resale thereof by
any of the Lessee Shareholders and that such person may be required to hold
any Units purchased pursuant hereto for an indefinite period of time; and
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(d) such person acknowledges and agrees not to sell, assign,
transfer or otherwise dispose of any Units acquired pursuant to this
Agreement (i) for a period of two years following the original purchase
thereof in each instance, except that such person may transfer such Units
among the Lessee Shareholders, provided that the acquiring Lessee
Shareholder consents in writing to be bound by the provisions of this
Section 6 and provides the Independent Directors with prior written notice
thereof, or (ii) in contravention of the Securities Act or any applicable
state securities laws. Each of the Lessee Shareholders further agrees that
any and all certificates issued to evidence the Units will bear, in
addition to any other required legend, the following legend, or such
comparable legend as may then be reasonably required by the Company and/or
the Partnership, until the restrictions to which it is applicable shall
have expired:
This securities evidenced hereby (i) are subject to
resale restrictions set forth in the Agreement
Respecting Lessee Unit Purchase, dated as of August 16,
1995, pursuant to which they were acquired and (ii)
have not been registered under the Securities Act or
any state securities laws, and may not be sold,
transferred or assigned by the holder hereof absent
such registration, unless an opinion of counsel
satisfactory to the issuer thereof shall have been
received by such issuer, to the effect that such sale,
transfer or assignment will not be in violation of the
Securities Act and the rules and regulations
promulgated thereunder, or any applicable state
securities laws. Any certificate issued to the holder
thereof, or to any permitted transferee hereof,
evidencing all or any portion of the securities
evidenced hereby may bear a legend to the foregoing
effect.
7. Amendment. This Agreement shall not be amended or modified, except by an
instrument in writing duly executed by the Lessee Shareholders (or the
applicable Lessee Shareholder), the Company and the Partnership. For purposes of
this Agreement, no person shall be duly authorized on behalf of the Company or
the Partnership to execute any such instrument amending or modifying this
Agreement unless such amendment or modification shall have been approved by the
Independent Directors.
8. Notices. All notices and other communications required or permitted to
be made or given in connection with this Agreement shall be in writing and shall
be deemed to have been given when hand delivered or deposited in the United
States Mail, as registered or certified mail, addressed (i) if to the Company
and/or the Partnership, to Sunstone Hotel Investors, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, Attention: Corporate
Secretary, (ii) if to Mr. ▇▇▇▇▇▇ ▇▇▇▇▇, to 2 Via Cancha, ▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, (iii) if to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, to ▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇, and (iv) if to the Lessee, to Sunstone Hotel Properties, Inc.,
▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, Attention Mr. ▇▇▇▇▇▇ ▇▇▇▇▇. Any
party may change the notice address of such party hereunder by notice given to
each other party hereto in the manner herein provided.
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9. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
10. Governing Law. This Agreement and the rights and obligations of all
parties hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California.
11. Attorneys' Fees. If any party to this Agreement shall bring any action,
suit, counterclaim or appeal for any relief against the other, declaratory or
otherwise, to enforce the terms hereof or to declare rights hereunder
(collectively, an "Action"), the Prevailing Party shall be entitled to recover
as part of any such Action its reasonable attorneys' fees and costs, including
any fees and costs incurred in bringing and prosecuting such Action and/or
enforcing any order, judgment, ruling or aware granted as part of such Action.
"Prevailing Party" within the meaning of this Section 11 includes, without
limitation, a party who agrees to dismiss an Action upon the other party's
payment of all or a portion of the sums allegedly due or performance of the
covenants allegedly breached, or who obtains substantially the relief sought by
it.
12. No Additional Liability of Independent Directors. Any and all action
taken by the Independent Directors pursuant to the terms of this Agreement shall
be deemed to be actions taken by the Company, and no liability shall attach to
the Independent Directors for such actions beyond the liability such Independent
Directors normally have in their capacity as directors of the Company.
13. Affiliate. As used in this Agreement, the term "Affiliate" shall mean
(i) any person that, directly or indirectly, controls or its controlled by or is
under common control with such person, (ii) any other person that owns,
beneficially, directly or indirectly, five percent (5%) or more of the
outstanding capital shares, shares or equity interests of such person, or (iii)
any officer, director, employee, partner or trustee of such person or any person
controlling, controlled by or under common control with such person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such person). The term "person" means and includes individuals,
corporations, general and limited partnerships, shares companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof. For the purposes of such
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interest or other equity
interests.
14. Default by Lessee Shareholders. The Lessee Shareholders shall be in
default under this Agreement if either Lessee Shareholder fails to perform his
obligations as and when required and such failure is not cured within 15 days
after written notice thereof is delivered by the Company to each Lessee
Shareholder.
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15. Cross-Default. At the Company's election, a default under this
Agreement by (a) either Lessee Shareholder shall be deemed a default by both of
the Lessee Shareholders, and (b) a default by Lessee under this Agreement shall
be deemed a default by either or both of the Lessee Shareholders.
16. No Dividend Policy. At no time during the term of this Agreement shall
Lessee have the right to make any distributions or pay any dividends (or make
loans in lieu thereof) to one or more of the Lessee Shareholders, except as
provided in Section 1.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be executed in its name, by an officer thereunto duly authorized, as of the day
and year first above written.
Company: SUNSTONE HOTEL INVESTORS, INC.
By: /s/▇▇▇▇▇▇ ▇. Alter
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▇▇▇▇▇▇ ▇. Alter
President
Partnership: SUNSTONE HOTEL INVESTORS, L.P.
By: Sunstone Hotel Investors, Inc.
its General Partner
By: /s/▇▇▇▇▇▇ ▇. Alter
--------------------------------
▇▇▇▇▇▇ ▇. Alter
President
Lessee Shareholders:
/s/▇▇▇▇▇▇ ▇. Alter
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▇▇▇▇▇▇ ▇. Alter
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Lessee: SUNSTONE HOTEL PROPERTIES, INC.
a Colorado corporation
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: President and Secretary
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