<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1998
REGISTRATION NO. 333-45647
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LASALLE HOTEL PROPERTIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
----------------
220 EAST 42ND STREET
NEW YORK, NEW YORK 10017
(212) 661-6161
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
----------------
JON E. BORTZ
220 EAST 42ND STREET
NEW YORK, NEW YORK 10017
(212) 661-6161
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
MICHAEL F. TAYLOR, ESQ. J. GREGORY MILMOE, ESQ.
BROWN & WOOD LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE WORLD TRADE CENTER LLP
NEW YORK, NEW YORK 10048-0557 919 THIRD AVENUE
(212) 839-5300 NEW YORK, NEW YORK 10022
---------------- (212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest,
$.01 par value....... 16,617,500 $20.00 $332,350,000 $98,044
</TABLE>
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(1) Includes 2,130,000 Common Shares issuable upon exercise of an over-
allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid at the initial filing of the Registration Statement.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus... Forepart of Registration Statement and Outside
Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges.. Prospectus Summary; The Company; Risk Factors
4. Determination of Offering
Price...................... Outside Front Cover Page; Underwriting
5. Dilution................... Dilution
6. Selling Security Holders... Not applicable
7. Plan of Distribution....... Outside Front Cover Page; Underwriting
8. Use of Proceeds............ Use of Proceeds; Structure and Formation of the
Company
9. Selected Financial Data.... Selected Financial Information
10. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................. Management's Discussion and Analysis of
Financial Condition and Results of Operations
11. General Information as to
Registrant................. Outside Front Cover Page; Prospectus Summary;
The Company; REIT Management; Structure and
Formation of the Company; Shares of Beneficial
Interest
12. Policy with Respect to
Certain Activities......... Prospectus Summary; The Company; Policies with
Respect to Certain Activities; Partnership
Agreement; Shares of Beneficial Interest;
Additional Information
13. Investment Policies of
Registrant................. Prospectus Summary; The Company; Business and
Growth Strategies; Policies with Respect to
Certain Activities
14. Description of Real
Estate..................... Prospectus Summary; The Initial Hotels
15. Operating Data............. The Company; The Initial Hotels; Financial
Statements
16. Tax Treatment of Registrant
and its Security Holders... Prospectus Summary; Federal Income Tax
Consequences
17. Market Price of and
Dividends on the
Registrant's Common Equity
and Related Shareholder
Matters.................... Risk Factors; Distribution Policy; The Company;
Structure and Formation of the Company
18. Description of Registrant's
Securities................. Shares of Beneficial Interest
19. Legal Proceedings.......... The Initial Hotels
20. Security Ownership of
Certain Beneficial Owners
and Management............. Principal Shareholders
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
21. Trustees and Executive
Officers.................. REIT Management
22. Executive Compensation.... REIT Management
23. Certain Relationships and
Related Transactions...... The Company; REIT Management; Structure and
Formation of the Company; Certain Relationships
and Transactions
24. Selection, Management and
Custody of Registrant's
Investments............... Outside Front Cover Page; Prospectus Summary;
The Company; The Initial Hotels
25. Policies with Respect to
Certain Transactions...... Policies with Respect to Certain Activities
26. Limitations of Liability.. The Company; Shares of Beneficial Interest; REIT
Management
27. Financial Statements and
Information............... Prospectus Summary; Selected Financial
Information; Financial Statements
28. Interests of Named Experts
and Counsel............... Experts; Legal Matters
29. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... REIT Management
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED APRIL 2, 1998
PROSPECTUS
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14,200,000 Shares
LASALLE HOTEL PROPERTIES
Common Shares of Beneficial Interest
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LaSalle Hotel Properties (together with its subsidiaries, the "Company") was
formed on January 15, 1998 to own hotel properties and to continue and expand
the hotel investment activities of LaSalle Partners Incorporated, and certain
of its affiliates (collectively "LaSalle"). The Company will be managed and
advised by LaSalle Hotel Advisors, Inc. (the "Advisor"), a wholly owned
subsidiary of LaSalle, and will be the exclusive vehicle for LaSalle's hotel
property investment activities in the United States. See "REIT Management--
Advisory Agreement." Upon completion of this offering (the "Offering"), the
Company, which intends to operate as a real estate investment trust ("REIT"),
will own, through an operating partnership (the "Operating Partnership"), three
convention, two resort, and five business oriented full service hotels, in
eight states containing an aggregate of 3,379 guest rooms (the "Initial
Hotels") and will seek to selectively acquire and develop additional hotel
properties, particularly upscale and luxury full service hotels located in
convention, resort and major urban business markets.
All of the common shares of beneficial interest, $0.01 par value per share (the
"Common Shares"), offered hereby are being sold by the Company. Upon completion
of the Offering, LaSalle is expected to own approximately 10.5% of the equity
of the Company in the form of Common Shares and interests exchangeable for
Common Shares. The Company intends to make regular quarterly distributions to
its shareholders, commencing with a pro rata distribution with respect to the
quarter ending June 30, 1998. Prior to the Offering, there has been no public
market for the Common Shares. It is currently anticipated that the initial
public offering price will be between $19.00 and $21.00 per Common Share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for listing of the
Common Shares on the New York Stock Exchange ("NYSE") under the symbol "LHO".
SEE "RISK FACTORS" ON PAGES 21 TO 32 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON SHARES OFFERED HEREBY, INCLUDING:
. Dependence on rent payments from Lessees for all of the Company's income
and the Company's limited control over the operations of hotels it owns
due to tax restrictions that prevent REITs from operating hotels;
. The Company's estimated annual distributions represent 103.6% of its 1997
estimated Cash Available for Distribution, resulting in the possibility
that the Company may be required to fund distributions from working
capital or borrowings or reduce such distributions;
. The lack of appraisals for the Initial Hotels, including the possibility
that the purchase prices paid by the Company for the Initial Hotels may
exceed the market value of such hotels;
. Conflicts of interest with and the receipt of material benefits by the
Advisor and the Contributors (as defined herein);
. Risks affecting the hotel industry generally, and the Company's hotels
specifically, including competition, increases in operating costs,
dependence on business and leisure travelers and the need for future
capital expenditures in excess of budgeted amounts;
. The Company has been recently organized and has no operating history; and
. The Company's use of debt financing and absence of limitation on
indebtedness could adversely affect its financial condition.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Common Share........................... $ $ $
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Total(3)................................... $ $ $
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</TABLE>
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(1) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $ .
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 2,130,000 additional Common Shares on the same terms and
conditions as set forth above. If all such additional Common Shares are
purchased by the Underwriters, the total Price to Public will be $ , the
total Underwriting Discounts and Commissions will be $ and the total
Proceeds to Company will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The Common Shares are being offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and
to withdrawal, cancellation or modification of the offer without notice.
Delivery of the shares to the Underwriters is expected to be made through the
facilities of the Depository Trust Company, New York, New York, on or about
, 1998.
PRUDENTIAL SECURITIES INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
RAYMOND JAMES & ASSOCIATES, INC.
April , 1998
<PAGE>
LASALLE HOTEL PROPERTIES
LaSalle Hotel Properties is focused on the ownership of upscale and luxury
full service hotels located in convention, resort and urban business markets.
The initial portfolio consists of ten full service hotels totalling 3,379
rooms, located in ten different markets in eight states.
Geographic and Market Diversification: [Map of U.S. indicating location and
category of each Initial Hotel]
The Company will seek to grow through relationships with premier
internationally recognized hotel operating companies which currently include:
[Graphic of Operating Relationships with logos of Le Meridien, Marriott,
Radisson, Outrigger Lodging Services and Durbin Companies, Inc.]
LaSalle Hotel Properties has been formed to exclusively continue and expand
the full service hotel ownership and investment activities of LaSalle Partners
Incorporated in the United States. The Company will be managed and advised by
a wholly owned subsidiary of LaSalle Partners Incorporated, a worldwide real
estate investment and services firm.
[Pictures of the following Initial Hotels with captions indicating their
category and location: Le Meridien Dallas, Radisson South Hotel & Plaza Tower,
Le Meridien New Orleans, Marriott Seaview Resort, Holiday Inn Beachside
Resort, Le Montrose All Suite Hotel, Radisson Tampa East, LaGuardia Airport
Marriott.]
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES
INCLUDING PURCHASES OF THE COMMON SHARES TO STABILIZE THEIR MARKET PRICE,
PURCHASES OF THE COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
The Company.............................................................. 3
The Advisor.............................................................. 5
Conflicts of Interest.................................................... 5
Risk Factors............................................................. 6
Business and Growth Strategies........................................... 8
The Initial Hotels....................................................... 9
Structure and Formation of the Company................................... 11
The Offering............................................................. 15
Distribution Policy...................................................... 15
Tax Status of the Company................................................ 16
SUMMARY FINANCIAL INFORMATION............................................. 17
RISK FACTORS.............................................................. 21
The Company's Ability to Make Distributions to its Shareholders will
Depend Solely Upon the Ability of the Lessees to Make Rent Payments
Under the Participating Leases.......................................... 21
The Return on the Company's Investment in Each Initial Hotel will be
Dependent Upon the Ability of the Lessees and the Operators to Operate
and Manage the Initial Hotels........................................... 21
Estimated Initial Cash Available for Distribution May Not be Sufficient
to Make Distributions at Expected Levels................................ 21
There is No Assurance that the Company is Paying Fair Market Value for
the Initial Hotels Being Acquired by the Company........................ 22
Conflicts of Interest in the Formation Transactions and the Business of
the Company and Dependence on Advisor Could Adversely Affect the
Company................................................................. 22
The Advisor, the Contributors and an Underwriter will Receive Material
Benefits from the Formation Transactions................................ 23
The Company's Performance and Value are Subject to Risks Associated with
the Hotel Industry...................................................... 23
Lack of Operating History Could Affect Performance....................... 24
The Company's Use of Debt Financing and Absence of Limitation on
Indebtedness Could Adversely Affect its Financial Condition............. 25
The Company's Dependence on External Sources of Capital Could Adversely
Affect Cash Flow........................................................ 25
Potential Liabilities Assumed by the Company Could Adversely Affect Cash
Flow.................................................................... 25
Absence of Prior Public Market for Common Shares Could Adversely Affect
the Price of the Common Shares.......................................... 26
The Company's Performance and Value are Subject to Real Estate Industry
Conditions.............................................................. 26
Failure to Qualify as a REIT Would Cause the Company to be Taxed as a
Corporation............................................................. 28
The Ability of Shareholders to Effect a Change in Control of the Company
is Limited.............................................................. 29
Changes in Market Interest Rates Could Adversely Affect the Market Price
of the Common Shares.................................................... 31
Purchasers of Common Shares in the Offering will Experience Immediate and
Substantial Book Value Dilution......................................... 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Availability of Common Shares for Future Sale Could Adversely Affect the
Price of the Common Shares.............................................. 31
Shareholder Approval is Not Required to Change Policies of the Company... 32
THE COMPANY............................................................... 33
BUSINESS AND GROWTH STRATEGIES............................................ 34
Acquisition Strategies for Future Growth................................. 34
Internal Growth Strategies............................................... 36
Development.............................................................. 37
Financing Strategies..................................................... 38
USE OF PROCEEDS........................................................... 39
DISTRIBUTION POLICY....................................................... 40
CAPITALIZATION............................................................ 42
DILUTION.................................................................. 43
SELECTED FINANCIAL INFORMATION............................................ 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 47
Pro Forma Results of Operations for the Company.......................... 47
Results of Operations of the Initial Hotels.............................. 48
Liquidity and Capital Resources.......................................... 50
Inflation................................................................ 51
Seasonality.............................................................. 51
THE HOTEL INDUSTRY........................................................ 52
THE INITIAL HOTELS........................................................ 53
Descriptions of Initial Hotels........................................... 53
The Participating Leases................................................. 62
Property Leases.......................................................... 66
Condominium Declaration.................................................. 67
Certain Information Regarding the Participating Leases................... 67
Participating Lease Terms................................................ 68
Franchise and Brand Agreements........................................... 69
Affiliated Lessee........................................................ 70
Operator Agreements...................................................... 70
Excluded Properties...................................................... 71
Employees................................................................ 71
Environmental Matters.................................................... 72
Competition.............................................................. 72
Insurance................................................................ 72
Legal Proceedings........................................................ 73
REIT MANAGEMENT........................................................... 74
Advisory Agreement....................................................... 74
Conflicts Between the Company and the Advisor............................ 76
Trustees and Officers of the Company, the Advisor and Relevant
Affiliates.............................................................. 77
Share Option and Incentive Plan.......................................... 80
STRUCTURE AND FORMATION OF THE COMPANY.................................... 81
Benefits to Related Parties.............................................. 82
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES.............................. 83
Investment Policies..................................................... 83
Financing............................................................... 83
Policies and Procedures for Addressing Conflicts........................ 84
Policies with Respect to Other Activities............................... 85
CERTAIN RELATIONSHIPS AND TRANSACTIONS................................... 86
Advisory Agreement...................................................... 86
The Affiliated Lessee................................................... 86
Relationships Among Officers, Trustees and Contributors................. 86
Acquisition of Interests in the Initial Hotels.......................... 86
The Participating Leases................................................ 86
The Operator Agreements................................................. 86
PARTNERSHIP AGREEMENT.................................................... 87
Operational Matters..................................................... 87
Liability and Indemnification........................................... 89
Transfers of Interests.................................................. 89
Extraordinary Transactions.............................................. 90
PRINCIPAL SHAREHOLDERS................................................... 92
SHARES OF BENEFICIAL INTEREST............................................ 93
General................................................................. 93
Common Shares........................................................... 93
Preferred Shares........................................................ 94
Power To Issue Additional Common Shares and Preferred Shares............ 94
Restrictions on Ownership and Transfer.................................. 94
Transfer Agent and Registrar............................................ 96
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S DECLARATION OF TRUST
AND BYLAWS.............................................................. 97
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Number of Trustees; Classification and Removal of Board of Trustees;
Other Provisions........................................................ 97
Changes in Control Pursuant to Maryland Law.............................. 98
Amendments to the Declaration of Trust and Bylaws........................ 98
Advance Notice of Trustee Nominations and New Business................... 99
Meetings of Shareholders................................................. 99
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws......................................... 99
Maryland Asset Requirements.............................................. 99
SHARES ELIGIBLE FOR FUTURE SALE........................................... 100
General.................................................................. 100
Registration Rights...................................................... 100
FEDERAL INCOME TAX CONSEQUENCES........................................... 102
General.................................................................. 102
Taxation of the Company.................................................. 102
Taxation of Shareholders................................................. 109
Other Tax Considerations................................................. 113
State and Local Tax...................................................... 114
UNDERWRITING.............................................................. 115
EXPERTS................................................................... 116
LEGAL MATTERS............................................................. 117
ADDITIONAL INFORMATION.................................................... 117
GLOSSARY OF SELECTED TERMS................................................ G-1
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data, including the financial statements and notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information in this Prospectus assumes (i) an initial public offering price
of $20.00 per Common Share (representing the midpoint of the price range) and
an equivalent value per unit of partnership interest ("Unit") in the Operating
Partnership (as defined herein), (ii) the completion of the transactions
described under "Formation Transactions," and (iii) the Underwriters' over-
allotment option will not be exercised. Unless the context requires otherwise,
(i) the term "Company," as used herein, includes LaSalle Hotel Properties, a
Maryland real estate investment trust and LaSalle Hotel Operating Partnership,
L.P., a Delaware limited partnership (the "Operating Partnership") or, as the
context may require, LaSalle Hotel Properties or the Operating Partnership only
and (ii) the term "Advisor," as used herein, includes LaSalle Hotel Advisors,
Inc., a Maryland corporation and the entities through which LaSalle Partners
Incorporated has conducted its hotel investment activities. See "Glossary of
Selected Terms" beginning on page G-1 for the definitions of certain terms used
in this Prospectus.
THE COMPANY
The Company, which intends to operate as a real estate investment trust
("REIT") for Federal income tax purposes, has been formed to own hotel
properties and to continue and expand the hotel investment activities of
LaSalle Partners Incorporated and certain of its affiliates (collectively,
"LaSalle"). The Company will be managed and advised by the Advisor, a wholly
owned subsidiary of LaSalle. Pursuant to an exclusivity agreement, the Company
will become the exclusive vehicle for LaSalle's hotel property investment
activities in the United States. See "REIT Management--Advisory Agreement."
Upon completion of the Offering and the Formation Transactions, the Company
will own three convention, two resort, and five business oriented full service
hotels, located in ten different markets in eight states containing an
aggregate of 3,379 guest rooms (the "Initial Hotels") and will seek to
selectively acquire and develop additional hotel properties, particularly
upscale and luxury full service hotels located in convention, resort and major
urban business markets. See "The Initial Hotels--Descriptions of the Initial
Hotels." Seven of the Initial Hotels will be leased to unaffiliated lessees
(affiliates of whom will also operate those Initial Hotels) and three of the
Initial Hotels will be leased to the affiliated lessee (together, the
"Lessees") under participating leases ("Participating Leases") which provide
for the payment of the greater of a base rent or participating rent and are
designed to allow the Company to achieve substantial participation in revenue
growth at the Initial Hotels. See "The Initial Hotels--The Participating
Leases." All ten of the Initial Hotels will be managed by independent,
unaffiliated operators (the "Operators"). See "The Initial Hotels--Operator
Agreements."
The Initial Hotels are primarily upscale or luxury full service hotels,
diversified by location in convention, resort and business oriented markets and
by brand or franchise affiliation with premier internationally recognized hotel
companies. The Company's Initial Hotels include two Le Meridiens(R), three
Marriotts(R), two Radissons(R), two Holiday Inns(R) and one independent luxury
all-suite hotel. For the year ended December 31, 1997, the Initial Hotels had a
weighted average occupancy of 72.9%, average daily room rate ("ADR") of
$112.72, and room revenue per available room ("REVPAR") of $82.19.
The Initial Hotels have achieved significant growth in occupancy, ADR and
REVPAR for the past three years as set forth in the following chart.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Number of Rooms........................... 3,365 3,374(1) 3,379(1)
Occupancy................................. 71.6% 72.5% 72.9%
ADR....................................... $ 102.34 $ 108.14 $ 112.72
REVPAR.................................... $ 73.23 $ 78.37 $ 82.19
Total Revenue ($ in thousands)............ $148,808 $159,593 $166,862
</TABLE>
- --------
(1) Adjusted to reflect actual expansions of certain of the Initial Hotels.
3
<PAGE>
For 1995, 1996 and 1997, average occupancy rates, ADR and REVPAR for the U.S.
lodging industry were 65.1%, 65.0% and 64.5%, $66.39, $70.81 and $75.16, and
$43.25, $46.06 and $48.50, respectively, according to Smith Travel Research,
Inc. ("Smith Travel Research"). See "The Hotel Industry." Management believes
the growth in occupancy, ADR and REVPAR at the Initial Hotels is due to: the
strength of the continuing recovery of the hotel industry in general and, more
specifically, the strength of the convention, resort and urban business markets
for upscale and luxury hotels; renovation and repositioning strategies and
aggressive asset management by LaSalle; and superior management and marketing
by the Operators.
Nine of the Initial Hotels have been renovated since January 1, 1995, and the
tenth Initial Hotel is scheduled for renovation in 1998. Capital improvements
at the Initial Hotels since January 1, 1995 have aggregated approximately $27.1
million. One of the Initial Hotels is currently undergoing further renovation
and two of the Initial Hotels have plans for further renovation in the near
term. Following completion of the Offering, the Company expects to have
approximately $9.9 million reserved to supplement annual capital expenditure
reserves and to fund planned renovations at certain of the Initial Hotels. The
Company believes that the renovations at the Initial Hotels will promote
further gains in REVPAR. Additionally, the Company is reviewing plans to expand
the number of rooms and/or meeting space at five of the Initial Hotels.
The Company believes that it can be distinguished from other real estate
companies and REITs that are focused on the acquisition and ownership of hotel
properties in the following major respects:
. Reputation, Experience and Resources of LaSalle. LaSalle is an
institutionally respected real estate services and investment firm which
has extensive experience in the acquisition, investment management,
finance, development and disposition of hotel properties, including over
$500 million of hotel acquisitions and investments since 1994 and over
$500 million of new hotel development. Through the Advisor, LaSalle will
provide the Company with hotel investment advisory services on an
exclusive basis, including domestic and international acquisitions,
research, due diligence, investment management, accounting, finance,
risk management and human resources.
. Focus on Convention, Resort and Major Urban Business Markets. Consistent
with the historical focus of the Advisor and with the Initial Hotels,
the Company will be primarily focused on investments in hotels located
in convention, resort and major urban business markets, which management
believes will continue to benefit from the recovery in the hotel sector.
Within these markets, the Company will be primarily focused on upscale
and luxury full service hotels. Convention, resort and urban business
hotels, the full service sector of these hotel markets generally, and
the upscale and luxury segments in particular, have experienced the
least amount of new supply and have the highest barriers to entry as a
result of high per property costs, high per room development costs
(relative to the price per room at which such hotels can be purchased)
and long lead times for new development.
. Multiple Independent, Unaffiliated Operators. The Company believes that
the exclusive use of independent, unaffiliated hotel operators
eliminates the potential for serious conflicts of interest which have
existed in other hotel REITs. Additionally, the use of multiple
operators provides diversification and creates a network of operators
that is expected to continue to generate acquisition opportunities for
the Company. The Company intends to continue to develop its
relationships with premier internationally recognized hotel operating
companies such as Marriott(R), Radisson(R), Le Meridien(R) and other
nationally respected operating companies.
. Acquisition of Hotel Properties Subject to Long-Term Agreements. The
Company believes that many of its competitors for hotels are focused
primarily on properties that can be acquired free of long-term
management and/or franchise agreements. Unlike these competitors, the
Company intends to use a variety of unaffiliated operators, and as a
result will pursue acquisitions of hotel properties solely based on
their investment potential. The Company believes there will be less
competition for the acquisition of hotel properties subject to long-term
management and/or franchise agreements, enabling such
4
<PAGE>
properties to be acquired at relatively attractive multiples of cash
flow and discounts to replacement cost. Generally, the Company will seek
to have the operators of these and its other hotels become lessees and
invest in Units or in the Common Shares of the Company.
The Company's executive offices are located at 220 East 42nd Street, New
York, New York 10017, and its telephone number is (212) 661-6161.
THE ADVISOR
The Advisor is a New York based wholly owned subsidiary of LaSalle. LaSalle
is a leading real estate services and investment firm that provides investment
management services, real estate management services and corporate and
financial services to corporations and other real estate owners, users and
investors worldwide. LaSalle believes it is the fourth largest manager of
institutional equity capital invested in U.S. real estate properties and
securities as well as the fourth largest manager of institutional real estate
equity investments in the United Kingdom. For the year ended December 31,
1997, LaSalle had approximately $15.0 billion of real estate assets under
management. In July 1997, LaSalle completed an initial public offering of its
common stock, which is listed on the NYSE.
LaSalle, through the Advisor, will conduct all of its future hotel property
investment activities in domestic hotels exclusively for the benefit of the
Company. See "REIT Management--Advisory Agreement." The Advisor is led by a
dedicated team of experienced hotel investment professionals which has
overseen numerous acquisitions, renovations, brand conversions, operator
selections, management contract negotiations, lease and franchise
negotiations, property repositionings and successful dispositions of hotel
investments. Management of the Advisor also oversaw the completion of the
development and opening of the 370 room super-luxury Four Seasons New York
Hotel, and is currently responsible for the development of a 259 room luxury
full service hotel in Philadelphia on behalf of the University of
Pennsylvania.
In order to provide incentives to the Advisor and align its interests with
those of the shareholders of the Company, the Company has entered into an
incentive-based advisory agreement with the Advisor (the "Advisory
Agreement"). The Advisor will receive a base fee to be paid in cash,
calculated as a percentage of the Company's net operating income ("NOI") and
an incentive fee to be paid in Common Shares of the Company based on growth in
the Company's Funds from Operations (as defined herein) per share, to manage
and advise the Company, providing resources and a scope of services not
otherwise available or affordable to the Company. In addition, upon completion
of the Offering, LaSalle will own approximately 10.5% of the equity of the
Company in the form of Common Shares and Units, thereby further aligning the
interests of LaSalle and the Advisor with those of the Company's shareholders.
CONFLICTS OF INTEREST
The interests of the Company and the Advisor potentially may conflict due to
the ongoing relationships between the two entities. Because the timing and
amount of incentive and other fees received by the Advisor may be affected by
various determinations, including the sale or disposition of properties, the
Advisor may have a conflict of interest with respect to such determinations.
In addition, LaSalle is a significant shareholder of the Company and could
influence decisions regarding the Advisory Agreement and fees relating to such
agreement. The failure of the Advisor or the Company to enforce the material
terms of the Advisory Agreement could result in a monetary loss to the
Company, which loss could have a material adverse effect on the Company's
financial condition or results of operations. In addition, certain situations
could arise where actions taken by the Advisor in its capacity as manager or
advisor of the Excluded Properties (as defined herein) or, to the limited
extent permitted under the Advisory Agreement, by its affiliates with respect
to Competitive Hotels (as defined herein),
5
<PAGE>
would not necessarily be in the best interests of the Company. Nevertheless,
the Company believes that there is sufficient mutuality of interest between the
Company and the Advisor to result in a mutually productive relationship.
Pursuant to the terms of the Advisory Agreement, conflicts that may arise
between the Company and the Advisor will be resolved by a majority of the
independent trustees. See "Risk Factors--Conflicts" and "REIT Management--
Advisory Agreement and --Conflicts between the Company and the Advisor."
The Company has adopted certain policies designed to eliminate or minimize
potential conflicts of interest. The Company's Board of Trustees is subject to
certain provisions of Maryland law which are designed to eliminate or minimize
certain potential conflicts of interest. Similarly, the Bylaws of the Company
provide that a majority of the Board of Trustees (and a majority of each
committee of the Board of Trustees) must not be "affiliates" of the Advisor,
and that the investment policies of the Company must be reviewed annually by a
majority of the independent trustees. In addition, the Company may terminate
the Advisory Agreement without termination fees or penalties upon notice given
at least 180 days prior to the expiration of the then current term of the
Advisory Agreement. See "REIT Management--Conflicts between the Company and the
Advisor."
RISK FACTORS
An investment in the Common Shares involves various material risks, and
prospective investors should carefully consider the matters discussed under
"Risk Factors" prior to making an investment decision. Such risks include,
among others:
. Dependence upon rental payments from the Lessees for all of the
Company's income, including risks related to the ability of the Lessees
to make rent payments sufficient to permit the Company to make
distributions to its shareholders, the failure or delay in making rent
payments, the failure of the Lessees or the Operators to effectively
manage the Initial Hotels, to meet obligations under the franchise or
brand licensing agreements and the limited operating history of the
Lessees.
. Dependence upon the ability of the Lessees and the Operators to manage
the Initial Hotels and, because of REIT qualification requirements,
restrictions on the Company's ability to operate the Initial Hotels.
. The Company's estimated initial annual distributions represent 103.6% of
its 1997 estimated Cash Available for Distribution, resulting in the
possibility that the Company may be required to fund distributions from
working capital or borrowings or reduce such distributions.
. The lack of appraisals for the Initial Hotels and the possibility that
the purchase price paid by the Company for interests in the Initial
Hotels, including interests acquired from the Contributors (as defined
herein) and certain of their affiliates, may exceed the market value of
such hotels.
. Because the timing and amount of incentive and other fees received by
the Advisor may be affected by various determinations, including the
sale or disposition of properties, the Advisor may have a conflict of
interest with respect to such determinations. LaSalle is a significant
shareholder of the Company and could influence decisions regarding the
Advisory Agreement and fees relating to such agreement, and regarding
enforcement of the Company's rights against the Affiliated Lessee (as
defined herein). Also, there may be conflicts of interest between the
Company and certain members of the Board of Trustees and certain
executive officers of the Company who are also officers and directors of
the Advisor and shareholders, officers and/or directors of LaSalle. The
Advisor may retain interests in or advise with respect to the Excluded
Properties and affiliates of the Advisor may, under limited
circumstances, acquire interests in or advise with respect to
Competitive Hotels.
. Receipt by the Advisor and the Contributors of material benefits from
the Formation Transactions, including, but not limited to (i) receipt by
the Contributors of an aggregate of 4,093,845 Common Shares and Units
(approximately $81.9 million), repayment of approximately $202.3 million
6
<PAGE>
of indebtedness associated with the Contributors' interests in the
Initial Hotels, rights to purchase 823,223 Common Shares and
approximately $47.2 million in cash in exchange for their interests in
the Initial Hotels and in connection with the Formation Transactions,
(ii) the grant to the Advisor of options to acquire 457,346 Common
Shares or, at the election of the Company, Units, (iii) receipt by the
Advisor of the right to appoint two members of the initial Board of
Trustees of the Company and receipt by one of the Contributors of the
right to appoint one member of the initial Board of Trustees of the
Company and (iv) ownership by LaSalle of a 45.5% interest in the
Affiliated Lessee.
. An affiliate of Prudential Securities Incorporated will receive a
portion of the net proceeds of the Offering in repayment of the $48.0
million outstanding under the Bridge Loan (as defined herein).
. Competition for guests, increases in operating costs due to inflation
and other factors, dependence on business, commercial and leisure
travelers, increases in energy costs and other expenses of travel,
seasonality, potential loss of franchise or brand licenses and the need
for future expenditures for capital improvements and for replacement of
furniture, fixtures and equipment ("FF&E") in excess of budgeted amounts
and other risks that may affect the hotel industry generally, or the
Initial Hotels specifically.
. The Company has been recently organized, has no operating history or
employees and is dependent on the Advisor for its management and
administration.
. The Company's use of debt financing and absence of limitation on
indebtedness in its organizational documents could adversely affect its
financial condition.
. Potential unavailability of adequate financing to fund acquisitions and
development activities under the Line of Credit (as defined herein),
extensions of the Line of Credit and any replacement credit facilities.
. Potential contingent liabilities assumed by the Company as a result of
its acquisition of all of the partnership interests in the entities that
own certain of the Initial Hotels.
. The absence of a prior public market for the Common Shares and the lack
of assurance that an active trading market for the Common Shares will
develop.
. The Company's performance and value are subject to real estate industry
conditions.
. Taxation of the Company as a corporation if it fails to qualify as a
REIT, and taxation of the Operating Partnership as a corporation if it
were deemed not to be a partnership for income tax purposes and the
Company's liability for Federal and state taxes on its income in either
such event, which could have a material adverse effect on Cash Available
for Distribution.
. Limitations contained in the Company's organizational documents,
including restrictions on ownership of more than 9.8% of the outstanding
Common Shares, may make a change in control of the Company more
difficult to achieve.
. Changes in market interest rates could adversely affect the price of the
Common Shares.
. Immediate and substantial dilution of $2.32 per share in the net
tangible book value of the Common Shares acquired by purchasers in the
Offering upon completion of the Offering and the Formation Transactions.
. The potential adverse effect on the market price of the Common Shares of
future or potential sales of Common Shares by LaSalle and the other
Contributors and the Advisor.
. Shareholder approval is not required to change policies of the Company.
7
<PAGE>
BUSINESS AND GROWTH STRATEGIES
The Company's primary objectives are to maximize current returns to its
shareholders through increases in Cash Available for Distribution and to
increase long-term total returns to shareholders through appreciation in the
value of its Common Shares. As further discussed below, to achieve these
objectives, the Company will seek to (i) invest in or acquire additional hotel
properties on favorable terms and (ii) enhance the return from, and the value
of, the Initial Hotels and any additional hotels. The Initial Hotels and any
additional hotels will be subject to Participating Leases which will allow the
Company to participate in any increased revenues from the hotels pursuant to
participating rent payments.
The Company will seek to achieve revenue growth principally through (i)
acquisitions of full service hotel properties located in convention, resort and
major urban business markets in the U.S. and abroad, especially upscale and
luxury full service hotels in such markets and where the Company, through
LaSalle's extensive research and local market experience, perceives strong
demand growth or significant barriers to entry, (ii) renovations and/or
expansions at certain of the Initial Hotels, and (iii) selective development of
hotel properties, particularly upscale and luxury full service hotel properties
in high demand markets where development economics are favorable.
The Company's hotel investment strategy has been developed with the benefit
of the proprietary research and experience of LaSalle's investment research
group. Utilizing this research, the Company intends to acquire additional hotel
properties in targeted markets, consistent with the growth strategies outlined
above and which:
. possess unique competitive advantages in the form of location, physical
facilities or other attributes;
. are available at significant discounts to replacement cost, including
when such discounts result from reduced competition for properties with
long-term management and/or franchise agreements;
. would benefit from brand or franchise conversion, new management,
renovations or redevelopment or other active and aggressive asset
management strategies; or
. have expansion opportunities.
The Company believes its acquisition capabilities will be enhanced by the
considerable experience, resources and relationships of LaSalle in the hotel
industry specifically and the real estate industry generally. Additionally, the
Company believes that having multiple independent hotel operators creates a
network that will continue to generate significant acquisition opportunities.
See "Business and Growth Strategies--Acquisition Strategies" and "Policies with
Respect to Certain Activities--Investment Policies."
The Company will also selectively undertake development and redevelopment of
hotel properties, particularly upscale and luxury full service hotel
properties, as well as expansion of certain of the Initial Hotels. Of the
Initial Hotels, one has a major expansion opportunity of 100 rooms and 9,800
square feet of meeting space and four have minor expansion opportunities
aggregating 28 rooms and 10,000 square feet of meeting space. Of these
expansion opportunities, the Company anticipates initiating or completing
construction of 119 rooms and 9,800 square feet of meeting space in 1998. See
"Business and Growth Strategies--Internal Growth Strategies."
Upon completion of the Offering and the Formation Transactions, the debt to
total market capitalization ratio of the Company will be approximately 9.9%.
The Company currently has a policy, subject to the discretion of the Board of
Trustees, of incurring debt only if upon such incurrence the Company's debt-to-
total market capitalization ratio would be 45% or less. The Company has
obtained a commitment for an unsecured $200 million revolving credit facility
(the "Line of Credit") from Societe Generale, Southwest Agency and The Bank of
Montreal (collectively, the "Banks"), the borrowings from which will be
utilized primarily for the acquisition and renovation of additional hotels and
the renovation and expansion of certain of the Initial Hotels. See "Policies
with Respect to Certain Activities--Investment Policies."
8
<PAGE>
THE INITIAL HOTELS
The Initial Hotels consist of ten full service hotels containing an aggregate
of 3,379 guest rooms with an average ADR of $112.72 for the year ended December
31, 1997, which target both business and leisure travelers, including groups
and those attending meetings and conventions, who prefer a full range of high
quality facilities, services and amenities. The Company's Initial Hotels
include two Le Meridiens(R), three Marriotts(R), two Radissons(R), two Holiday
Inns(R) and one independent luxury all-suite hotel. Full service hotels
generally provide a significant array of guest services and offer a full range
of meeting and conference facilities and banquet space. Facilities also
typically include restaurants and lounge areas, gift shops and recreational
facilities, including swimming pools. As a result, full service hotels often
generate significant revenue from sources other than guest room revenue.
The Initial Hotels include three luxury, six upscale and one mid-price full
service hotel located in three convention, two resort and five business
oriented markets in eight states. The Company's categorization of each of the
Initial Hotels as luxury, upscale or mid-price is based upon the corresponding
lodging industry segments as defined by Smith Travel Research which groups
hotels according to their market average daily rate or brand affiliation. The
Company believes that the quality and diversity of its initial portfolio will
moderate any potential effect on the Company of regional economic conditions or
local market competition affecting specific hotel brands or markets. No
assurance can be given, however, regarding the future performance of the
Initial Hotels.
For the period January 1, 1995 through December 31, 1997, approximately $27.1
million of capital improvements have been made at the Initial Hotels. In
addition, upon completion of the Offering, the Company will have cash reserves
of approximately $9.9 million to supplement annual capital reserves and to fund
planned renovations at certain of the Initial Hotels. The Company believes that
the Initial Hotels will continue to benefit from favorable market conditions,
recent and planned capital improvements and repositionings and planned
expansions. See "The Initial Hotels--Descriptions of the Initial Hotels" and
"--Participating Lease Terms."
The table on the following page sets forth certain information with respect
to the Initial Hotels. The Lessees are obligated to pay the Company the greater
of Base or Participating Rent at each of the Initial Hotels.
9
<PAGE>
THE INITIAL HOTELS
<TABLE>
<CAPTION>
RENOVATIONS
AND CAPITAL
YEAR IMPROVEMENT
NUMBER ACQUIRED EXPENDITURES,
OF GUEST YEAR BUILT/ BY THE 1/1/95-
INITIAL HOTEL(1) LOCATION ROOMS(2) RENOVATED(3) CONTRIBUTORS 12/31/97(4)
- ---------------- -------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
CONVENTION
ORIENTED:
Radisson Hotel
South and Plaza
Tower............ Bloomington, MN 580 1969/1997 1995 $ 4,743
Le Meridien New
Orleans.......... New Orleans, LA 494 1984/1997 1996 2,849
Le Meridien
Dallas........... Dallas, TX 396 1980/(8) 1997 817
RESORT ORIENTED:
Marriott Seaview Galloway Twnshp. 300 1912/1997 1997 4,414
Resort(9)........ (Atlantic City), NJ
Holiday Inn
Beachside
Resort(10)....... Key West, FL 222 1960/1997 1997 2,108
BUSINESS
ORIENTED:
LaGuardia Airport
Marriott(9)(11).. New York, NY 436 1981/1996 1998 5,226
Omaha Marriott
Hotel(9)......... Omaha, NE 301 1982/1997 1996 2,075
Radisson Tampa
East Hotel(12)... Tampa, FL 265 1987/1996 1995 1,345
Holiday Inn Plaza
Park............. Visalia, CA 257 1976/1995 1994 1,861
Le Montrose All
Suite Hotel
De Gran
Luxe(13)......... West Hollywood, CA 128 1976/1997 1994 1,686
----- -------
Total/Weighted
Average......... 3,379 $27,124
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
PRO FORMA
LESSEE
INCOME ROOM
TOTAL BEFORE LESSEE REVENUE
REVENUE PRO EXPENSES AND AVERAGE PER
OF THE FORMA PRO FORMA PARTICIPATING DAILY AVAILABLE
INITIAL BASE PARTICIPATING LEASE AVERAGE RATE ROOM
INITIAL HOTEL(1) HOTELS RENT(5) RENT(5) PAYMENTS(6) OCCUPANCY (ADR) (REVPAR)(7)
- ---------------- -------- ------- ------------- ------------- --------- ------- -----------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C> <C> <C> <C>
CONVENTION
ORIENTED:
Radisson Hotel
South and Plaza
Tower............ $ 26,215 $ 5,300 $ 7,420 $ 8,881 71.2% $ 91.93 $ 65.48
Le Meridien New
Orleans.......... 23,396 6,600 8,431 9,196 71.8% 132.46 95.16
Le Meridien
Dallas........... 15,500 2,655 3,412 3,951 69.1% 107.97 74.64
RESORT ORIENTED:
Marriott Seaview 29,321 4,700 6,670 8,709 67.6% 151.91 102.63
Resort(9)........
Holiday Inn
Beachside
Resort(10)....... 7,916 2,108 2,823 3,042 76.5% 105.24 80.46
BUSINESS
ORIENTED:
LaGuardia Airport
Marriott(9)(11).. 26,509 4,730 6,282 8,326 80.1% 137.99 110.53
Omaha Marriott
Hotel(9)......... 14,695 2,615 4,027 4,883 77.7% 103.67 80.61
Radisson Tampa
East Hotel(12)... 10,329 2,200 3,048 3,403 76.1% 89.25 67.87
Holiday Inn Plaza
Park............. 5,982 975 1,258 1,479 62.5% 61.12 38.18
Le Montrose All
Suite Hotel
De Gran
Luxe(13)......... 6,999 2,300 2,972 3,159 81.5% 137.11 111.76
-------- ------- ------------- ------------- --------- ------- -----------
Total/Weighted
Average......... $166,862 $34,183 $46,343 $55,029 72.9% $112.72 $ 82.19
</TABLE>
- ----
(1) Each of the Initial Hotels will be wholly owned by the Company following
the Offering.
(2) As of December 31, 1997.
(3) The Company defines a renovation as a significant upgrade of guest rooms
or common areas with capital expenditures averaging at least $3,000 per
guest room. In some cases, renovations occurred over more than one
calendar year. Year renovated reflects the calendar year in which the
most recent of such renovations was completed.
(4) Represents total capital expenditures at each hotel from January 1, 1995
through December 31, 1997; dollars in thousands; except that with respect
to Le Meridien Dallas and Omaha Marriott Hotel, information is not
available for periods prior to acquisition by the Contributors.
(5) Under the terms of the Participating Leases, the Lessees are obligated to
pay the greater of Base or Participating Rent.
(6) Represents pro forma Lessee net income before pro forma Participating
Lease payments and pro forma management fees of $8,073 paid to the
Operators. Management fees are subordinate to Participating Lease
payments to the Company, for all properties except the LaGuardia Airport
Marriott ($2,025 management fee), the Omaha Marriott Hotel ($1,105
management fee), and the Marriott Seaview Resort ($1,985 management fee).
See "Selected Financial Information--Lessees."
(7) REVPAR is determined by dividing room revenue by available rooms for the
applicable period.
(8) Le Meridien Dallas is anticipated to be renovated in 1998 at a cost of
approximately $9,400 per room.
(9) Figures for the hotels are through January 2, 1998, the end of the
hotels' fiscal periods.
(10) Holiday Inn Beachside Resort was originally built in 1960, with its most
recent addition completed in 1989.
(11) LaGuardia Airport Marriott is expected to be acquired by the Company
contemporaneously with the completion of the Offering or shortly
thereafter.
(12) The hotel is currently operated as Camberley Plaza Sable Park Hotel; it
is anticipated that the hotel will be converted to a Radisson prior to or
contemporaneously with the completion of the Offering.
(13) Le Montrose All Suite Hotel De Gran Luxe was built in 1976 as an
apartment building and was converted to a hotel in 1989.
10
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY
The chart below depicts the structure of the Company upon completion of the
Offering and the Formation Transactions.
[CHART]
11
<PAGE>
The Company will be managed by the Advisor in accordance with the terms of
the Advisory Agreement. The Initial Hotels will be leased by the Operating
Partnership to the Lessees and will be operated by the Operators pursuant to
the terms of the Operator Agreements (as defined herein). See "REIT Management"
and "The Initial Hotels."
The principal transactions in connection with the formation of the Company as
a REIT and the acquisition of the Initial Hotels ("Formation Transactions")
will be as follows:
. The Company was formed as a Maryland real estate investment trust on
January 15, 1998.
. The Operating Partnership was formed as a Delaware limited partnership
on January 13, 1998.
. The Advisor was formed as a Maryland corporation on January 23, 1998.
. The partnerships owning three of the Initial Hotels (Radisson Tampa East
Hotel, Holiday Inn Plaza Park and Le Montrose All Suite Hotel De Gran
Luxe) entered into a loan agreement on January 30, 1998 with an
affiliate of Prudential Securities Incorporated (the "Bridge Loan")
pursuant to which the three partnerships borrowed an aggregate of $48.0
million, the proceeds of which were used to purchase the interest of
Cargill Financial Services Corporation and its affiliates ("Cargill") in
those three Initial Hotels and to repay outstanding mortgage and other
indebtedness on such Initial Hotels and certain expenses in connection
therewith. Amounts outstanding under the Bridge Loan will be repaid with
a portion of the net proceeds from the Offering.
. The Company will use a portion of the estimated net proceeds of the
Offering to repay an affiliate of Prudential Securities Incorporated the
$48.0 million outstanding under the Bridge Loan.
. The Company will sell 14,200,000 Common Shares in the Offering.
Approximately $264.1 million of the estimated net proceeds to the
Company from the Offering, 912,122 Common Shares and rights to purchase
823,223 Common Shares will be contributed to the Operating Partnership
in exchange for an approximate 82.6% equity interest in the Operating
Partnership (which will be accounted for as a purchase transaction). The
Company will be the sole general partner of the Operating Partnership.
. Each of the Initial Hotels, excluding the LaGuardia Airport Marriott, is
owned by one or more contributors (the "Contributors") consisting
of: LaSalle, affiliates of Steinhardt Group, Inc. ("Steinhardt"),
Cargill, Radisson Group, Inc. ("Radisson"), Outrigger Lodging Services
("OLS") and an affiliate of the Durbin Companies, Inc. ("Durbin").
Pursuant to Contribution Agreements entered into in January 1998, the
Operating Partnership will acquire a 100% interest in each of the
Initial Hotels excluding the LaGuardia Airport Marriott, (which will be
accounted for as a purchase transaction), for an aggregate of 3,181,723
Units, 912,122 Common Shares, rights to purchase 823,223 Common Shares,
approximately $47.2 million in cash and the repayment of approximately
$202.3 million of outstanding mortgage and other indebtedness on such
Initial Hotels (including the $48.0 million outstanding under the Bridge
Loan) and certain expenses in connection therewith.
. Contemporaneously with the completion of the Offering, or shortly
thereafter, the Company will acquire the LaGuardia Airport Marriott
(which will be accounted for as a purchase transaction) for
approximately $45.5 million.
. LaSalle will form LaSalle Hotel Lessee, Inc., an Illinois corporation
(the "Affiliated Lessee"), to serve as lessee for the three Initial
Hotels for which the Operator has declined on account of internal policy
reasons to serve as lessee. The Affiliated Lessee will be owned as
follows: 9.0% by the Company, 45.5% by LaSalle and 45.5% by LPI
Charities, a charitable corporation organized under the laws of the
state of Illinois. The Affiliated Lessee has not entered into and will
not enter into any leases of hotel properties except leases for hotels
owned by the Company.
. The Operating Partnership will lease the Initial Hotels to the Lessees
for terms of between six and 11 years pursuant to separate Participating
Leases, which provide for rent equal to the greater of Base Rent or
Participating Rent. The Lessees will contract with the Operators to
operate the Initial Hotels under separate Operator Agreements providing,
with respect to seven of the Initial Hotels, for the subordination of
the payment of all management fees to the Lessees' obligations to pay
rent to the Operating Partnership. Each of the Lessees has not entered
into and will not enter into any leases of hotel properties except
leases for hotels owned by the Company.
12
<PAGE>
. As a result of the foregoing transactions, LaSalle will own 912,122
Common Shares, and the public shareholders will own 14,200,000 Common
Shares, respectively, representing approximately a 5.0% and a 77.6%
economic interest, respectively, in the Company. The Company will own
15,112,122 Units representing approximately an 82.6% economic interest
in the Operating Partnership. Additionally, LaSalle and the other
Contributors will own 1,016,361 and 2,165,362 Units, respectively,
representing an approximately 5.6% and 11.8% economic interest,
respectively, in the Operating Partnership.
. The Company will enter into the unsecured $200 million Line of Credit
and initially borrow approximately $40.3 million thereunder.
. Upon consummation of the Offering, the Advisor will receive options to
acquire 457,346 Common Shares or, at the election of the Company, Units,
as a structuring fee incurred in connection with the promotion and
formation of the Company, and the consummation of the Formation
Transactions, the Offering and Line of Credit.
See "Structure and Formation of the Company."
As a result of the Formation Transactions, LaSalle, the Advisor, the
Contributors, certain trustees and Prudential Securities Incorporated will
receive the following benefits:
. The Advisor will enter into the Advisory Agreement pursuant to which the
Advisor will receive annual base and incentive fees based upon the
performance of the Company. See "REIT Management--Advisory Agreement."
. The Advisor will have the right to appoint two members of the initial
Board of Trustees of the Company.
. The Advisor will receive options to acquire 457,346 Common Shares, or at
the election of the Company, Units.
. LaSalle will own a 45.5% interest in the Affiliated Lessee.
. In connection with the acquisition of Radisson Tampa East Hotel, Holiday
Inn Plaza Park, Le Montrose All Suite Hotel De Gran Luxe and LaGuardia
Airport Marriott, LaSalle will receive brokerage commissions and
acquisition fees of approximately $0.6 million in the aggregate.
. The Operating Partnership will acquire interests with an aggregate book
value of $8.9 million in the Initial Hotels (excluding LaGuardia Airport
Marriott) from LaSalle in exchange for 1,016,361 Units valued at
approximately $20.3 million and 912,122 Common Shares valued at
approximately $18.2 million, representing aggregate consideration of
$38.5 million.
. The Operating Partnership will acquire interests with an aggregate book
value of $27.5 million in six of the Initial Hotels (excluding LaGuardia
Airport Marriott) from Steinhardt in exchange for 1,565,983 Units valued
at approximately $31.3 million, rights to purchase 662,237 Common Shares
at the initial public offering price per share, the right to appoint one
member of the initial Board of Trustees of the Company and $19.1 million
in cash, representing aggregate consideration of $50.4 million.
. The Operating Partnership will acquire interests with an aggregate book
value of $32.3 million in five of the Initial Hotels (excluding
LaGuardia Airport Marriott) from Cargill in exchange for 180,636 Units
valued at approximately $3.6 million, rights to purchase 160,986 Common
Shares at the initial public offering price per share and $28.1 million
in cash, representing aggregate consideration of $31.7 million.
. The Operating Partnership will acquire interests with an aggregate book
value of $0.5 million in two of the Initial Hotels from OLS, the
Operator and partial owner of such hotels, in exchange for 78,350 Units
valued at approximately $1.6 million.
13
<PAGE>
. The Operating Partnership will acquire interests with a book value of
$1.6 million in one of the Initial Hotels from Radisson, the Operator
and partial owner of such hotel, in exchange for 332,893 Units valued at
approximately $6.7 million.
. The Operating Partnership will acquire interests with a book value of
$0.1 million in one of the Initial Hotels from Durbin, the Operator and
partial owner of such hotel, in exchange for 7,500 Units valued at
approximately $0.2 million.
. As a result of the foregoing transactions, LaSalle will own 912,122
Common Shares, and the public shareholders will own 14,200,000 Common
Shares, respectively, representing approximately a 5.0% and a 77.6%
economic interest, respectively, in the Company. Additionally, the
Company will own 15,112,122 Units of the Operating Partnership, and
LaSalle and the other Contributors will collectively own 3,181,723 Units
representing an 82.6% and 17.4% economic interest, respectively, in the
Operating Partnership.
. Certain tax consequences to the Contributors from the conveyance of
their interests in the Initial Hotels to the Operating Partnership will
be deferred.
. Contributors receiving Units and/or rights to purchase Common Shares,
and the Advisor which is receiving Common Shares or, at the election of
the Company, Units in the Formation Transactions will have registration
rights with respect to Common Shares issued in exchange for Units or
upon exercise of such rights or options.
. An affiliate of Prudential Securities Incorporated will receive a
portion of the net proceeds from the Offering in repayment of the $48.0
million outstanding under the Bridge Loan.
. Each non-employee trustee of the Company will receive options to acquire
5,000 Common Shares.
14
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Shares Offered Hereby.................... 14,200,000 shares
Common Shares to be Outstanding After the
Offering....................................... 18,293,845 shares(1)
Use of Proceeds................................. To acquire an 82.6%
partnership interest in the
Operating Partnership. The
Operating Partnership will
use such funds to acquire the
Initial Hotels, to repay
certain mortgage and other
existing indebtedness in
connection with the
acquisition of the Initial
Hotels, to establish cash
reserves for capital
improvements at certain of
the Initial Hotels and to pay
certain fees and expenses in
connection with the Offering
and the Formation
Transactions. See "Use of
Proceeds."
Proposed NYSE Symbol............................ LHO
</TABLE>
- --------
(1) Includes the Common Shares being offered hereby, and 912,122 Common Shares
and 3,181,723 Units expected to be issued in connection with the Formation
Transactions that may be exchanged for cash or, at the option of the
Company, Common Shares on a one-for-one basis. Assumes that the
Underwriters' over-allotment option to purchase up to 2,130,000 shares will
not be exercised and excludes 1,305,569 shares reserved for issuance upon
the exercise of options and rights to be granted pursuant to the Company's
share purchase rights, the option grant to the Advisor and the Share Option
Plan (as defined herein) concurrently with the Offering.
DISTRIBUTION POLICY
The Company presently intends to make regular quarterly distributions to its
shareholders. The Company intends to declare and pay a pro rata distribution
with respect to the period commencing on the completion of the Offering and
ending on June 30, 1998, based upon $0.375 per share for a full quarter. On an
annualized basis, this would be $1.50 per share, or an annual distribution rate
of 7.5% (representing the midpoint of the price range set forth on the cover
page of this Prospectus). For the 12 month period ended December 31, 1997, this
estimated distribution represents approximately 103.6% of pro forma estimated
Cash Available for Distribution. The holders of Units will be entitled to
distributions per Unit which are equal to the distributions payable on a per
share basis with respect to the Common Shares. See "Partnership Agreement." The
Company does not intend to reduce the expected distribution per share if the
Underwriters' over-allotment option is exercised, resulting in an increase in
the number of Common Shares outstanding on account of such exercise.
The Board of Trustees, in its sole discretion, will determine the actual
distribution rate based on the Company's actual results of operations, Cash
Available for Distribution, economic conditions, tax considerations (including
those related to REITs) and other factors. See "Distribution Policy."
15
<PAGE>
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ending December 31, 1998, and believes its organization
and proposed method of operation will enable it to meet the requirements for
qualification as a REIT. REITs are subject to a number of organizational and
operational requirements, including a requirement that they currently
distribute at least 95% of their taxable income (excluding net capital gain).
If the Company qualifies for taxation as a REIT, the Company generally will
not be subject to Federal income tax on that portion of its ordinary income or
net capital gain that is currently distributed to shareholders. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject to
Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. See "Federal Income Tax
Considerations--Failure to Qualify" for a more detailed discussion of the
consequences of a failure of the Company to qualify as a REIT. Even if the
Company qualifies for taxation as a REIT, the Company may be subject to certain
foreign state and local taxes on its income and property and to Federal income
and excise taxes on its undistributed income and certain other categories of
income. See "Federal Income Tax Consequences."
16
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables set forth unaudited summary pro forma consolidated
financial data for the Company and summary combined historical financial data
for the Initial Hotels (excluding LaGuardia Airport Marriott). This information
should be read in conjunction with the financial statements and the notes
thereto contained elsewhere in this Prospectus. The pro forma operating data is
presented as if the consummation of the Offering and the related Formation
Transactions, the acquisition of the Initial Hotels, and the application of the
net proceeds of the Offering and the initial borrowings under the Line of
Credit (as described under "Use of Proceeds") had occurred on January 1, 1997
and all the Initial Hotels had been leased pursuant to the Participating Leases
as of that date and carried forward through each period presented. The pro
forma balance sheet data is presented as if the aforementioned transactions had
occurred on December 31, 1997.
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA(1)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
-------------
<S> <C>
OPERATING DATA:
Participating Lease revenue:(2)
Affiliated Lessee.............................................. $ 16,979
Other Lessees.................................................. 29,364
Depreciation..................................................... 16,782
Real estate and personal property taxes, property and casualty
insurance....................................................... 6,183
General and administrative(3).................................... 700
Interest(4)...................................................... 3,453
Advisory fees(5)................................................. 2,343
Other............................................................ 414
Minority interest(6)............................................. 2,865
--------
Total expenses and minority interest............................. $ 32,740
Net income applicable to common shareholders..................... $ 13,603
Basic and diluted net income per share........................... $ 0.90
Weighted average number of Common Shares outstanding............. 15,112
<CAPTION>
AS OF
DECEMBER 31,
1997
-------------
<S> <C>
BALANCE SHEET DATA:
Investment in hotel properties, net.............................. $352,911
Total assets..................................................... $365,503
Borrowings against Line of Credit................................ $ 40,324
Minority interest(6)............................................. $ 56,581
Shareholders' equity............................................. $268,598
Number of Common Shares outstanding.............................. 15,112
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
-------------
<S> <C>
CASH FLOW DATA:
Net cash provided by operating activities(7)..................... $ 27,919
Net cash used in investing activities(8)......................... $ (6,138)
Net cash used in financing activities(9)......................... $(22,668)
OTHER DATA:
Funds from Operations(10)........................................ $ 27,465
Funding of capital expenditure reserves(8)....................... (6,138)
Amortization of debt issuance costs.............................. 550
--------
Cash Available for Distribution(11).............................. $ 21,877
Distributions(11)................................................ $ 22,668
</TABLE>
17
<PAGE>
COMBINED INITIAL HOTELS
SUMMARY COMBINED HISTORICAL FINANCIAL DATA(12)
(EXCLUDING LAGUARDIA AIRPORT MARRIOTT)
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Revenues:
Room revenue.................................. $ 10,396 $ 28,958 $ 62,007
Food and beverage revenue..................... 4,639 15,553 28,834
Telephone revenue............................. 580 1,258 2,733
Other revenue................................. 810 2,400 4,780
-------- -------- ---------
Total revenue............................... $ 16,425 $ 48,169 $ 98,354
Operating expenses:
Departmental and operating expenses........... $ 12,427 $ 32,769 $ 66,199
Management fees............................... 462 1,861 4,501
Property taxes................................ 404 1,826 3,424
Interest expense.............................. 1,580 4,701 10,745
Depreciation and amortization................. 1,518 5,026 10,206
Advisory fees................................. 231 451 906
-------- -------- ---------
Total expenses.............................. $ 16,622 $ 46,634 $ 95,981
Net income (loss)............................... $ (197) $ 1,535 $ 2,373
BALANCE SHEET DATA:
Investment in hotel properties, net............. $ 60,554 $133,105 $ 222,266
Total assets.................................... $ 67,557 $147,311 $ 251,522
Long-term debt.................................. $ 42,736 $ 94,466 $ 166,943
Partners' capital(13)........................... $ 20,774 $ 45,686 $ 71,384
CASH FLOW DATA:
Net cash provided by operating activities....... $ 1,731 $ 6,949 $ 16,256
Net cash used in investment activities.......... $(48,957) $(79,788) $(107,204)
Net cash provided by financing activities....... $ 48,038 $ 74,147 $ 95,438
OTHER DATA:
Available room nights........................... 206,483 470,939 838,981
</TABLE>
- --------
(1) The pro forma information does not purport to represent what the Company's
or the Initial Hotels' financial position or results of operations would
actually have been if the consummation of the Formation Transactions had,
in fact, occurred on such dates, or to project the Company's or the Initial
Hotels' financial position or the results of operations at any future date
or for any future period.
(2) Represents lease payments from Lessees calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the pro forma
revenues of the Initial Hotels, as though the hotels were acquired January
1, 1997 and leased pursuant to the Participating Leases since that date.
See "The Initial Hotels--The Participating Leases" for the Participating
Lease formulas.
(3) Represents general and administrative expenses for professional fees,
trustees' and officers' insurance, trustee's fees and expenses, and other
expenses associated with operating as a public company.
18
<PAGE>
(4) Represents (i) interest expense at an assumed interest rate of 7.2% on
approximately $40.3 million of pro forma borrowings under the Line of
Credit in connection with the completion of the Formation Transactions, and
(ii) amortization of debt issuance costs associated with the Line of Credit
over the term of the facility.
(5) Represents advisory fees to be paid to the Advisor for management, advisory
and administrative services to be provided to the Company. The Advisor will
receive an annual base fee up to 5% of the Company's net operating income,
as defined, and an annual incentive fee which prior to January 1, 1999 will
be limited to 1% of the Company's net operating income based on growth in
Funds from Operations per share.
(6) Minority interest represents the interest in the Operating Partnership that
will not be owned by the Company and is calculated at approximately 17.4%
of the pro forma net income of the Operating Partnership.
(7) Represents net income applicable to common shareholders plus the Company's
share of depreciation and amortization.
(8) Pro forma cash used in investing activities is the Company's share of the
annual reserve for capital improvements at the Initial Hotels required by
the Participating Leases.
(9) Represents estimated initial distributions to be made based on the
estimated dividend rate of $1.50 per share and an aggregate of 15,112,122
Common Shares outstanding.
(10) Funds from Operations ("Funds from Operations" or "FFO"), as defined by
the National Association of Real Estate Investment Trusts ("NAREIT"),
represents net income applicable to common shareholders (computed in
accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring and sales of property (including
furniture and equipment), plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs), and
after adjustments for unconsolidated partnerships and joint ventures.
Funds from Operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles, is
not necessarily indicative of cash flow available to fund cash needs and
should not be considered as an alternative to net income as an indication
of performance or to cash flow as a measure of liquidity. The Company
considers FFO to be an appropriate measure of the performance of an equity
REIT in that such calculation is a measure used by the Company to evaluate
its performance against its peer group and is a basis for making the
determination as to the allocation of its resources and reflects the
Company's ability to meet general operating expenses. Additionally, the
incentive compensation payable to the Advisor is based upon growth in FFO
per share. Although Funds from Operations has been computed in accordance
with the current NAREIT definition, Funds from Operations as presented may
not be comparable to other similarly titled measures used by other REITs.
Funds from Operations does not reflect cash expenditures for capital
improvements or principal amortization of indebtedness on the Initial
Hotels.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Pro forma net income applicable to common shareholders.......... $13,603
Pro forma depreciation, net of minority interest................ $13,862
-------
Pro forma Funds from Operations................................. $27,465
</TABLE>
(11) For the calculation of Cash Available for Distribution and Distributions
see "Distribution Policy."
19
<PAGE>
(12) The Initial Hotels (excluding the LaGuardia Airport Marriott, which is
expected to be acquired after December 31, 1997) were acquired at various
times over the reporting period such that the number of hotels owned at
the end of each reporting period are as follows:
<TABLE>
<CAPTION>
NUMBER OF
PERIOD: HOTELS OWNED
------- ------------
<S> <C>
Year ended 1994................................................. 2
Year ended 1995................................................. 4
Year ended 1996................................................. 6
Year ended 1997................................................. 9
</TABLE>
The following table sets forth certain summary unaudited pro forma
operating data as if the aforementioned hotel acquisitions had been
consummated as of the beginning of each respective period. These amounts do
not include the LaGuardia Airport Marriott, which was not acquired by the
Company prior to December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Total revenues..................................... $79,461 $104,771 $140,353
Total depreciation................................. $ 8,420 $ 10,359 $ 14,766
Total interest..................................... $ 9,087 $ 12,728 $ 15,876
Total expenses..................................... $77,995 $102,848 $137,602
Net income......................................... $ 1,466 $ 1,923 $ 2,751
</TABLE>
(13) Partners' capital represents the interests of the Contributors and their
predecessors in the Initial Hotels.
20
<PAGE>
RISK FACTORS
In addition to the other information presented in this Prospectus,
prospective investors should carefully consider the following matters before
purchasing Common Shares in the Offering.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans of operations, business strategy, results of operations and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Factors that could cause or contribute to such differences include, but are
not limited to, those described below, under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"The Initial Hotels," "Business and Growth Strategies" and elsewhere in this
Prospectus.
THE COMPANY'S ABILITY TO MAKE DISTRIBUTIONS TO ITS SHAREHOLDERS WILL DEPEND
SOLELY UPON THE ABILITY OF THE LESSEES TO MAKE RENT PAYMENTS UNDER THE
PARTICIPATING LEASES. The Company's income is dependent upon rental payments
from the Lessees which in turn depend upon the ability of the Lessees to
generate sufficient revenues from the Initial Hotels in excess of operating
expenses. Any failure or delay by the Lessees in making rent payments would
adversely affect the Company's ability to make anticipated distributions to
its shareholders. Such failure or delay by the Lessees may be caused by
reductions in revenue from the Initial Hotels or in the net operating income
of the Lessees or otherwise. In addition, all but two of the Lessees are newly
organized limited purpose entities and all of the Lessees have limited assets.
Although failure on the part of a Lessee to materially comply with the terms
of a Participating Lease (including failure to pay rent when due) would give
the Company the right to terminate such lease, repossess the applicable
property and enforce the payment obligations under the Participating Lease,
the Company would then be required to find another lessee to lease such
property. There can be no assurance that the Company would be able to enforce
the payment obligations of the defaulting Lessee, find another lessee or, if
another lessee were found, that the Company would be able to enter into a new
lease on favorable terms.
THE RETURN ON THE COMPANY'S INVESTMENT IN EACH INITIAL HOTEL WILL BE
DEPENDENT UPON THE ABILITY OF THE LESSEES AND THE OPERATORS TO OPERATE AND
MANAGE THE INITIAL HOTELS. To maintain its status as a REIT, the Company will
not be able to operate the Initial Hotels or any subsequently acquired hotels.
As a result, the Company will be unable to directly implement strategic
business decisions with respect to the operation and marketing of its hotels,
such as decisions with respect to the setting of room rates, repositioning of
a hotel, change of franchise and brand affiliation, food and beverage prices
and certain similar matters. Although the Company, through the Advisor,
intends to consult with the Lessees and Operators with respect to strategic
business plans (including capital improvements, hotel repositionings,
expansions, renovations and improvements to food and beverage facilities)
affecting the Initial Hotels, the Lessees and Operators will be under no
obligation to implement any of the Company's recommendations with respect to
such matters. No assurance can be given that the Lessees and Operators will
operate the Initial Hotels successfully or in a manner which will maximize the
Company's return on its investment in each Initial Hotel.
ESTIMATED INITIAL CASH AVAILABLE FOR DISTRIBUTION MAY NOT BE SUFFICIENT TO
MAKE DISTRIBUTIONS AT EXPECTED LEVELS. The Company's estimated initial annual
distributions represent approximately 103.6% of the Company's pro forma
estimated Cash Available for Distribution for the year ended December 31,
1997. Accordingly, the Company initially may be unable to pay its estimated
initial annual distribution of $1.50 per share to shareholders out of Cash
Available for Distribution as calculated under "Distribution Policy" below.
Under such circumstances, the Company could be required to fund distributions
from working capital, utilize borrowings under the Line of Credit, if
available, to provide funds for such distribution, or to reduce the amount of
such distribution. There can be no assurance that revenues generated by the
Company's hotels will not decline and that future Cash Available for
Distribution will be sufficient to make expected distributions to the
Company's
21
<PAGE>
shareholders. If expected distributions are not made, the market price of the
Common Shares likely would be adversely affected. In the event the
Underwriters' over-allotment option is exercised, pending investment of the
proceeds therefrom, the Company's ability to pay such distribution out of Cash
Available for Distribution may be further adversely affected.
THERE IS NO ASSURANCE THAT THE COMPANY IS PAYING FAIR MARKET VALUE FOR THE
INITIAL HOTELS BEING ACQUIRED BY THE COMPANY. In establishing the purchase
prices of the Initial Hotels, no independent appraisals were obtained. In
addition, there were no arm's-length negotiations with respect to the
Company's acquisition of interests in the Initial Hotels from the
Contributors. Accordingly, there can be no assurance that the price paid by
the Company for the Initial Hotels, including interests acquired from the
Contributors, does not exceed the value of the hotels and other assets
acquired by the Company.
The valuation of the Company has been determined based upon a capitalization
of the Company's estimated Cash Available for Distribution (as described in
"Summary Financial Information") and the other factors discussed under
"Underwriting" rather than an asset-by-asset valuation based on historical
cost or current market value. This methodology has been used because the
Company's management believes it appropriate to value the Company as an
ongoing business rather than with the view to values that could be obtained
from a liquidation of the Company or of individual assets owned by the
Company.
CONFLICTS OF INTEREST IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY AND DEPENDENCE ON ADVISOR COULD ADVERSELY AFFECT THE COMPANY. The
Company does not have any employees and is dependent on the Advisor for all
strategic business direction, management and administrative services. While
the employees of the Advisor will devote substantially all of their time and
efforts on behalf of the Company, certain employees of the Advisor will
allocate a limited portion of their time and efforts to other activities on
behalf of LaSalle. See "REIT Management-Advisory Agreement." In the event that
the Advisor does not perform its obligations under the Advisory Agreement or
if the Advisory Agreement were to be terminated, the Company would not have
any employees to provide such services and no assurance can be given that a
satisfactory replacement advisor could be engaged on acceptable terms; the
failure to do so could have a material adverse effect on the Company's
financial condition or results of operations.
LaSalle is a full service real estate firm that provides investment
management services, management services and corporate and financial services.
Although the Advisory Agreement will limit LaSalle's ability to engage in any
activities that would compete with the business of the Company, no assurance
can be given that LaSalle's activities will not be in competition with or
otherwise conflict with the business of the Company.
The interests of the Company and the Advisor potentially may conflict due to
the ongoing relationships between the two entities. Because the timing and
amount of incentive and other fees received by the Advisor may be affected by
various determinations, including the sale or disposition of properties, the
Advisor may have a conflict of interest with respect to such determinations.
In addition, LaSalle is a significant shareholder of the Company and could
influence decisions regarding the Advisory Agreement and fees relating to such
agreement. Although all agreements with the Advisor must be approved by a
majority of the Company's Independent Trustees, no assurance of arm's-length
negotiations can be given. With respect to the various contractual
arrangements between the two entities, the potential exists for disagreement
as to the quality of services provided by the Advisor and as to contractual
compliance. Under the Advisory Agreement, in addition to certain Excluded
Properties, the Advisor is permitted to acquire interests, directly or
indirectly, in Competitive Hotels or advise with respect to Competitive Hotels
to the extent that such Affiliate (i) is a "registered investment adviser"
under the Investment Advisers Act of 1940, as amended, and makes such
acquisition or gives such advice in the ordinary course of management
activities for securities investments, (ii) acquires a company or other entity
which owns or provides asset management services with respect to Competitive
Hotels, provided that is not a material activity of such company or entity and
that such company or entity does not engage in activities relating to
additional Competitive Hotels, (iii) invests in debt or debt securities, or
(iv) is engaged in consulting, development, financing, disposition or facility
related services with respect to Competitive Hotels. In addition, certain
situations could arise where actions taken by the Advisor in its capacity as
manager or adviser of Competitive Hotels or the Excluded Properties in its
conduct of other activities permitted under the Advisory
22
<PAGE>
Agreement would not necessarily be in the best interests of the Company. The
failure of the Advisor or the Company, as the case may be, to enforce the
material terms of the Advisory Agreement could result in a monetary loss to
the Company, which loss could have a material adverse effect on the Company's
financial condition or results of operations.
In addition, Stuart L. Scott and Jon E. Bortz serve as Trustees of the
Company and also serve as officers and directors of LaSalle and the Advisor.
Mr. Bortz and Michael Barnello (who is also an officer and director of the
Advisor) also serve as officers of the Company. Messrs. Scott, Bortz and
Barnello, as well as certain other officers and Trustees of the Company and
directors of the Advisor, also own shares (and/or options or other rights to
acquire shares) in LaSalle, either directly or indirectly.
The Company will have limited recourse for indemnification claims against
certain of the Contributors under the contribution agreements pursuant to
which the Company acquired the Initial Hotels; the Units received by LaSalle
as consideration for contributing its interests in the Initial Hotels will be
pledged for one year to secure indemnification obligations under these
contribution agreements. Also, certain holders of Units, consisting of the
Contributors who hold Units, may experience different and more adverse tax
consequences compared to those experienced by holders of Common Shares or
other holders of Units upon the sale of any of the Initial Hotels. Therefore,
such holders and the Company may have different objectives regarding the
appropriate pricing and timing of any sale of the Initial Hotels and regarding
the appropriate characteristics of additional hotels to be considered for
acquisition, and their status as holders of Units may influence the Company
not to sell particular properties even though such sales might otherwise be
financially advantageous to the Company and its shareholders.
THE ADVISOR, THE CONTRIBUTORS AND AN UNDERWRITER WILL RECEIVE MATERIAL
BENEFITS FROM THE FORMATION TRANSACTIONS. Such benefits include, but are not
limited to, (i) receipt by the Contributors of an aggregate of 4,093,845
Common Shares and Units (approximately $81.9 million), repayment of
approximately $202.3 million of indebtedness associated with the Contributors'
interests in the Initial Hotels, rights to purchase 823,223 Common Shares and
approximately $47.2 million in cash in exchange for their interests in the
Initial Hotels and in connection with the Formation Transactions, (ii) the
grant to the Advisor of options to acquire 457,346 Common Shares, or, at the
election of the Company, Units (iii) receipt by the Advisor of the right to
appoint two members of the initial Board of Trustees of the Company and by one
of the Contributors of the right to appoint one member of the initial Board of
Trustees of the Company, (iv) ownership by LaSalle of a 45.5% interest in the
Affiliated Lessee and (v) an affiliate of Prudential Securities Incorporated
will receive a portion of the net proceeds of the Offering in repayment of the
$48.0 million outstanding under the Bridge Loan.
THE COMPANY'S PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
HOTEL INDUSTRY
Competition for Guests, Increases in Operating Costs, Dependence on Travel
and Economic Conditions Could Affect the Company's Cash Flow. The Initial
Hotels will be subject to all operating risks common to the hotel industry.
These risks include, among other things, (i) competition for guests from other
hotels, some of which may have greater marketing and financial resources than
the Company, the Lessees and the Operators; (ii) increases in operating costs
due to inflation and other factors, which increases may not have been offset
in recent years, and may not be offset in the future by increased room rates;
(iii) dependence on business and leisure travelers, which demand may fluctuate
and be seasonal; (iv) increases in energy costs, airline fares and other
expenses related to travel, which may deter travelling; and (v) adverse
effects of general and local economic conditions. These factors could
adversely affect the ability of the Lessees to generate revenues and to make
rent payments and therefore the Company's ability to make expected
distributions to its shareholders.
Unexpected Operating Costs Could Adversely Affect the Company's Cash
Flow. Hotels require ongoing renovations and other capital improvements,
including periodic replacement or refurbishment of FF&E. Under the terms of
the Participating Leases, the Company is obligated to establish a reserve to
pay the cost of certain capital expenditures at the Initial Hotels and to pay
for periodic replacement or refurbishment of FF&E. The Company, in
consultation with the Lessees and the Operators, will control the use of funds
in this reserve; provided, however, with respect to the Initial Hotels which
are operated by Marriott, the Company together with the Affiliated Lessee and
Marriott will jointly agree upon the use of funds in this reserve. If capital
expenditures
23
<PAGE>
exceed the Company's expectations, there can be no assurance that sufficient
sources of financing will be available to fund such expenditures. The
additional cost of such expenditures could have an adverse effect on Cash
Available for Distribution. In addition, the Company may acquire hotels in the
future that require significant renovation. Renovation of hotels involves
certain risks, including the possibility of environmental problems,
construction cost overruns and delays, uncertainties as to market demand or
deterioration in market demand after commencement of renovation and the
emergence of unanticipated competition from other hotels.
The Company May Compete for Investment Opportunities with Entities that Have
Substantially Greater Financial Resources than the Company, Including Lodging
Companies and Other REITs. These entities generally may be able to accept more
risk than the Company can prudently manage, including risks with respect to
the creditworthiness of a hotel operator or the geographic proximity of its
investments. Competition generally may reduce the number of suitable
investment opportunities offered to the Company and increase the bargaining
power of property owners seeking to sell.
Seasonality of the Hotel Industry Could Affect the Company's Cash
Flow. Generally, hotel revenue for business hotels is greater in the second
and third quarters of a calendar year, although this may not be true for
hotels in major tourist destinations. Revenue for hotels in tourist areas
generally is substantially greater during the tourist season than during other
times of the year. Seasonal variations in revenue at the Initial Hotels may
cause quarterly fluctuations in the Company's lease revenue. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Seasonality."
Conditions of Franchise Agreements and Brand Licensing Agreements Could
Adversely Affect the Company. Two of the Initial Hotels are subject to
franchise agreements and seven are subject to brand licensing agreements. In
addition, hotels in which the Company invests subsequently may be operated
pursuant to franchise and brand agreements. The continuation of such franchise
or brand agreements is subject to specified operating standards and other
terms and conditions. Licensors typically inspect licensed properties
periodically to confirm adherence to operating standards. Action or inaction
on the part of any of the Company, the Lessees or the Operators could result
in a breach of such standards or other terms and conditions of the franchise
or brand licenses and could result in the loss or cancellation of a franchise
or brand license. It is possible that a licensor could condition the
continuation of a franchise or brand license on the completion of capital
improvements which the Board of Trustees determines are too expensive or
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotel. In that event, the Board of
Trustees may elect to allow the franchise or brand license to lapse. In any
case, if a license is terminated, the Company and the Lessee may seek to
obtain a suitable replacement license or to operate the hotel independent of a
franchise or brand license. The loss of a franchise or brand license could
have a material adverse effect upon the operations or the underlying value of
the hotel covered by the license because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the licensor, or due to any penalties payable upon early termination of a
license.
The Company's Dependence Upon a Limited Number of Properties Could Adversely
Affect the Company's Ability to Make Distributions to Shareholders. The
Company initially will own interests in only ten hotels. Significant adverse
changes in the operations of any property could have a material adverse effect
on lease revenues and the Company's ability to make expected distributions to
its shareholders.
The Company's Exclusive Focus on the Hotel Industry Could Adversely Affect
its Operating Results. The Company's current strategy is to acquire interests
only in hotels. As a result, the Company will be subject to risks inherent in
investments in a single industry. The effects on Cash Available for
Distribution resulting from a downturn in the hotel industry may be more
pronounced than if the Company had investments in more than one industry.
LACK OF OPERATING HISTORY COULD AFFECT PERFORMANCE. The Company, the Advisor
and certain of the Lessees have been recently organized and have no operating
history. There can be no assurance that the Company will be able to generate
sufficient Cash Available for Distribution to make anticipated distributions
to
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shareholders. The Company, the Advisor and the Lessees also will be subject to
the risks generally associated with the formation of any new business.
THE COMPANY'S USE OF DEBT FINANCING AND ABSENCE OF LIMITATION ON
INDEBTEDNESS COULD ADVERSELY AFFECT ITS FINANCIAL CONDITION. Upon completion
of the Offering, the Company, through the Operating Partnership, will enter
into the Line of Credit. Borrowings under the Line of Credit will bear
interest at variable rates based upon a specified spread over 30-day, 60-day
or 90-day London Interbank Offered Rate ("LIBOR") or a spread over a specified
adjusted base rate, at the Company's election. Upon the completion of the
Offering and the Formation Transactions, the Company expects to have
approximately $40.3 million outstanding under the Line of Credit, and the debt
to total market capitalization ratio of the Company will be approximately
9.9%. The Company currently has a policy of incurring debt only if upon such
incurrence the Company's debt to total market capitalization ratio would be
45% or less. However, the organizational documents of the Company do not
contain any limitation on the amount of indebtedness the Company may incur.
Accordingly, the Board of Trustees could alter or eliminate this policy and
would do so, for example, if it were necessary in order for the Company to
continue to qualify as a REIT. If this policy were changed, the Company could
become more highly leveraged, resulting in an increase in debt service that
could adversely affect the Company's Cash Available for Distribution to
shareholders and could increase the risk of default on the Company's
indebtedness. See "Policies with Respect to Certain Activities--Financing
Policies."
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets. The Company has used total market capitalization because it believes
that the book value of its assets (which to a large extent is the depreciated
original cost of real property, the Company's primary tangible assets) does
not accurately reflect its ability to borrow and to meet debt service
requirements. The market capitalization of the Company, however, is more
variable than book value, and does not necessarily reflect the fair market
value of the underlying assets of the Company at all times. The Company also
will consider factors other than market capitalization in making decisions
regarding the incurrence of indebtedness, such as the purchase price of
properties to be acquired with debt financing, the estimated market value of
its properties upon refinancing and the ability of particular properties and
the Company as a whole to generate cash flow to cover expected debt service.
There can be no assurance that the Company will be able to meet its debt
service obligations and, to the extent that it cannot, the Company risks the
loss of some or all of its assets to foreclosure. Adverse economic conditions
could result in higher interest rates which could increase debt service
requirements on floating rate debt and could reduce the amounts available for
distribution to shareholders. The Company may obtain one or more forms of
interest rate protection (swap agreements, interest rate cap contracts, etc.)
to hedge against the possible adverse effects of interest rate fluctuations.
Adverse economic conditions could cause the terms on which borrowings become
available to be unfavorable. In such circumstances, if the Company is in need
of capital to repay indebtedness in accordance with its terms or otherwise, it
could be required to liquidate one or more investments in hotel properties at
times which may not permit realization of the maximum return on such
investments.
THE COMPANY'S DEPENDENCE ON EXTERNAL SOURCES OF CAPITAL COULD ADVERSELY
AFFECT CASH FLOW. The Company anticipates that it will finance its
acquisitions and development activities in part with the proceeds from the
Line of Credit, extensions of the Line of Credit and replacement credit
facilities. There can be no assurance that the Company will continue to be
able to obtain such financing on acceptable terms.
POTENTIAL LIABILITIES ASSUMED BY THE COMPANY COULD ADVERSELY AFFECT CASH
FLOW. Because the Company is acquiring all the partnership interests in the
entities that own certain of the Initial Hotels, the Company may become liable
for certain liabilities, including contingent liabilities of such selling
entities. There is, therefore, a risk that unforeseen liabilities could exist
for which the Company could be liable and which could materially and adversely
affect Cash Available for Distribution. Each of the Contributors which are
LaSalle affiliates (each, a "LaSalle Contributor") will execute a Supplemental
Representations, Warranties and Indemnity Agreement (the "Supplemental
Agreement") whereby each of the LaSalle Contributors will indemnify the
Company against certain losses resulting from the inaccuracy of certain
representations or
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warranties. The maximum liability of each LaSalle Contributor under the
Supplemental Agreement is limited to the number of Units or Shares received by
such entity for its respective interests in the Initial Hotels; provided,
however, that each LaSalle Contributor shall have no liability for any such
losses unless such losses exceed $100,000 in the aggregate.
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES COULD ADVERSELY AFFECT THE
PRICE OF THE COMMON SHARES. Prior to the Offering, there has been no public
market for the Common Shares. Application has been made to list the Common
Shares on the NYSE, subject to official notice of issuance. See
"Underwriting." The initial public offering price may not be indicative of the
market price for the Common Shares after the Offering, and there can be no
assurance that an active public market for the Common Shares will develop or
continue after the Offering. See "Underwriting" for a discussion of factors to
be considered in determining the initial public offering price. There also can
be no assurance that, upon listing, the Company will continue to meet the
criteria for continued listing of the Common Shares on the NYSE.
THE COMPANY'S PERFORMANCE AND VALUE ARE SUBJECT TO REAL ESTATE INDUSTRY
CONDITIONS
Adverse Changes in Economic Conditions, Competition, Legal Requirements or
Tax Rates or other Unanticipated Events Could Adversely Affect the Company's
Performance. The Company's purchase of the Initial Hotels is subject to
varying degrees of risk generally incident to the ownership of real property.
The value of the Initial Hotels, and therefore the Company's income and
ability to make distributions to its shareholders, is dependent upon the
abilities of the Lessees and Operators to operate the properties in a manner
sufficient to maintain or increase revenues and to generate sufficient income
in excess of operating expenses to make rent payments under the Participating
Leases. Income from the Initial Hotels may be adversely affected by changes in
national economic conditions, changes in local market conditions due to
changes in general or local economic conditions and neighborhood
characteristics, competition from other hotel properties, changes in interest
rates and in the availability, cost and terms of mortgage funds, the impact of
present or future environmental legislation and compliance with environmental
laws, the ongoing need for capital improvements, particularly in older
structures, changes in real estate tax rates and other operating expenses,
changes in governmental rules and fiscal policies, civil unrest, acts of God,
including earthquakes and other natural disasters (which may result in
uninsured losses), acts of war, adverse changes in zoning laws, and other
factors which are beyond the control of the Company.
The Relative Illiquidity of Real Estate Investments Could Adversely Affect
the Price of the Common Shares. Real estate investments are relatively
illiquid. The ability of the Company to vary its portfolio in response to
changes in economic and other conditions is limited. No assurance can be given
that the market value of any of the Initial Hotels will not decrease in the
future. Because management believes it is appropriate to value the Company as
an ongoing business rather than through liquidation values of the Company or
the Initial Hotels, the valuation of the Company has been determined based
primarily upon a capitalization of the estimated Cash Available for
Distribution and the other factors set forth in the section captioned
"Underwriting," rather than on a property by property basis considering
historical cost or current market value. There can be no assurance that the
Company will be able to dispose of an investment when it finds disposition
advantageous or necessary or that the sale price of any disposition will
recoup or exceed the amount of the Company's investment.
Uninsured Losses Could Adversely Affect the Company's Cash Flow. Each
Participating Lease specifies comprehensive insurance to be maintained on each
of the Initial Hotels, including liability, fire and extended coverage. The
Company believes such specified coverage is of the type and amount customarily
obtained for or by an owner on real property assets. Leases for subsequently
acquired hotels will contain similar provisions. However, there are certain
types of losses, generally of a catastrophic nature, such as earthquakes,
hurricanes and floods, that may be uninsurable or not economically insurable.
The Company's Board of Trustees and the Advisor will use their discretion in
determining amounts, coverage limits and deductibility provisions of
insurance, with a view to maintaining appropriate insurance coverage on the
Company's interest in the hotel properties at a reasonable cost and on
suitable terms. This may result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full current market value
or current replacement cost of the Company's lost investment. Inflation,
changes in building codes and ordinances, environmental considerations, and
other factors also might make it unfeasible to use insurance proceeds to
replace the property after such
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property has been damaged or destroyed. Under such circumstances, the
insurance proceeds received by the Company might not be adequate to restore
its economic position with respect to such property.
Liability for Environmental Matters Could Adversely Affect the Company's
Financial Condition. Under various United States Federal, state, and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under or in such property.
Such laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of contamination from hazardous or toxic substances, or
the failure to remediate such contaminated property properly, may adversely
affect the owner's ability to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws
and common law principles could be used to impose liability for release of
asbestos-containing materials ("ACMs") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with exposure to released ACMs. Environmental laws also may impose
restrictions on the manner in which property may be used or businesses may be
operated, and these restrictions may require expenditures.
In connection with the acquisition of its interests in the Initial Hotels,
the Company or the Operating Partnership potentially may be liable for any
such costs. The cost of defending against claims of liability or remediating
the contaminated property could materially adversely affect the Cash Available
for Distribution to the Company's shareholders.
Phase I environmental assessments have been obtained on all of the Initial
Hotels from various qualified independent environmental engineers. The most
recent Phase I reports for the Initial Hotels were prepared in 1997. The
purpose of Phase I audits is to identify potential environmental contamination
for which the Initial Hotels may be responsible and the potential for other
environmental liabilities. The Phase I audit reports have not revealed any
environmental liability that the Company believes would have a material
adverse effect on the Company's business, assets, results of operations or
liquidity, nor is the Company aware of any such liability. Nevertheless, it is
possible that these reports do not reveal all environmental liabilities or
that there are material environmental liabilities of which the Company is
unaware.
Increases in Property Taxes Could Adversely Affect the Company's Cash
Flow. Each Initial Hotel is subject to real and personal property taxes. The
real and personal property taxes on the Initial Hotels may increase or
decrease as property tax rates change and as the properties are reassessed by
taxing authorities. If property taxes increase, the Company's ability to make
expected distributions to its shareholders could be adversely affected.
Certain Leases and Rights of First Refusal may Constrain the Company from
Acting in the Best Interests of Shareholders. Le Meridien New Orleans is
subject to a ground lease with a third party lessor. Any proposed sale of Le
Meridien New Orleans by the Operating Partnership or any proposed assignment
of the Operating Partnership's leasehold interest in the ground lease will
require the consent of the third party lessor. As a result, the Company and
the Operating Partnership may not be able to sell, assign, transfer or convey
the Operating Partnership's interest in Le Meridien New Orleans without the
consent of such third party lessor, even if such transactions may be in the
best interests of the shareholders of the Company. Le Meridien Dallas is
subject to a right of first refusal for the sale of this Initial Hotel in
favor of the owner of the balance of the condominium units. In addition, the
Company will be subject to certain rights of first refusal with respect to the
following Initial Hotels: Radisson Hotel South and Plaza Tower, Marriott
Seaview Resort and LaGuardia Airport Marriott. See "The Initial Hotels--
Operator Agreements." Future hotels acquired by the Company may be subject to
similar restrictions.
The Costs of Compliance with the Americans with Disabilities Act Could
Adversely Affect the Company's Cash Flow. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all public accommodations are required
to meet certain Federal requirements related to access and use by disabled
persons. A determination that the Company is not in compliance with the ADA
could result in imposition of fines or an award of damages
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to private litigants. If the Company were required to make modifications to
comply with the ADA, the Company's ability to make expected distributions to
its shareholders could be adversely affected.
Failure of Acquisitions to Perform as Expected or Unanticipated Development
Costs May Adversely Affect the Company's Cash Flow. The Company intends to
pursue acquisitions of additional hotels and, under appropriate circumstances,
may pursue development opportunities. Acquisitions entail risks that
investments will fail to perform in accordance with expectations and that
estimates of the costs of acquisition and of renovation will prove inaccurate,
as well as general investment risks associated with any new real estate
investment. New project development is subject to numerous risks, including
risks of construction delays or cost overruns that may increase project costs,
new project commencement risks such as receipt of zoning, occupancy and other
required governmental approvals and permits and the incurrence of development
costs in connection with projects that are not pursued to completion. The fact
that the Company must in general, distribute 95% of its net taxable income in
order to maintain its qualification as a REIT may limit the Company's ability
to rely upon lease income from the Initial Hotels or subsequently acquired
hotels to finance acquisitions or new developments. As a result, if debt or
equity financing were not available on acceptable terms, further acquisitions
or development activities might be curtailed or Cash Available for
Distribution might be adversely affected.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE THE COMPANY TO BE TAXED AS A
CORPORATION
The Company Will Be Taxed as a Corporation if it Fails to Qualify as a
REIT. The Company intends to operate so as to qualify as a REIT for Federal
income tax purposes commencing with its taxable year ending December 31, 1998.
A REIT generally is not taxed at the corporate level on income it currently
distributes to its shareholders, as long as it distributes at least 95% of its
REIT taxable income. Although the Company believes that it will be organized
and will operate in such a manner so as to qualify as a REIT, no assurance can
be given that the Company will be organized or will be able to operate in a
manner so as to qualify as a REIT or remain so qualified. Qualification as a
REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations.
The determination of various factual matters and circumstances not entirely
within the Company's control may affect its ability to qualify and to continue
to qualify as a REIT. The complexity of these provisions and of the applicable
income tax regulations that have been promulgated under the Code is greater in
the case of a REIT that holds its assets through a partnership, such as the
Company. Moreover, no assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not change
the tax laws with respect to qualification as a REIT or the Federal income tax
consequences of such qualification. The Company will rely on the opinion of
Brown & Wood LLP, counsel to the Company, to the effect that, based on various
assumptions relating to the organization and operation of the Company and
representations made by the Company as to certain factual matters, the
Company's proposed method of operation will enable it to meet the requirements
for qualification and taxation as a REIT. Such legal opinion will not be
binding on the IRS. Moreover, Brown & Wood LLP has undertaken no obligation to
update such opinion nor will Brown & Wood LLP monitor the Company's compliance
with the Code's REIT provisions. See "Federal Income Tax Consequences."
If the Company fails to qualify as a REIT in any taxable year, the Company
will not be allowed a deduction for distributions to its shareholders in
computing its taxable income and will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
the applicable corporate rate. In addition, unless it were entitled to relief
under certain statutory provisions, the Company would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This disqualification would reduce the funds of the
Company available for investment or distribution to shareholders because of
the additional tax liability of the Company for the year or years involved.
If the Company were to fail to qualify as a REIT, it no longer would be
subject to the distribution requirements of the Code and, to the extent that
distributions to shareholders would have been made in anticipation of the
Company's qualifying as a REIT, the Company might be required to borrow funds
or to liquidate certain of its assets to pay the applicable corporate income
tax. Although the Company currently intends
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to operate in a manner designed to qualify as a REIT, it is possible that
future economic, market, legal, tax or other considerations may cause the
Company's Board of Trustees to decide to revoke the REIT election. See
"Federal Income Tax Consequences."
To Qualify as a REIT the Company Must Meet Minimum Distribution
Requirements. In order to qualify as a REIT, the Company generally will be
required each year to distribute to its shareholders at least 95% of its
taxable income (excluding net capital gain). In addition, the Company may be
subject to income and excise tax if the Company does not meet certain
distribution requirements. See "Federal Income Tax Consequences--Taxation of
the Company--Annual Distribution Requirements."
The Company intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid Federal income tax and excise
tax. The Company's income will consist primarily of the Company's share of the
income of the Operating Partnership, and the Company's cash flow will consist
primarily of its share of distributions from the Operating Partnership.
Differences in timing between the receipt of income and the payment of
expenses in arriving at taxable income of the Company and the effect of
nondeductible capital expenditures, the creation of reserves or required debt
amortization payments could require the Company to borrow funds through the
Operating Partnership on a short term or long-term basis to meet the
distribution requirements that are necessary to continue to qualify as a REIT
and to avoid Federal income and excise tax. The requirement to distribute a
substantial portion of the Company's net taxable income could cause the
Company to distribute amounts that otherwise would be spent on future
acquisitions, capital expenditures or repayment of debt, which could require
the Company to borrow funds or to sell assets to fund the cost of these items.
THE ABILITY OF SHAREHOLDERS TO EFFECT A CHANGE IN CONTROL OF THE COMPANY IS
LIMITED
Potential Anti-Takeover Effect of Certain Provisions of Maryland Law and the
Company's Declaration of Trust and Bylaws. Certain provisions of Maryland law
and of the Company's Declaration of Trust and Bylaws may have the effect of
discouraging a third party from making an acquisition proposal for the Company
and could delay, defer or prevent a transaction or a change in control of the
Company under circumstances that could give the holders of Common Shares the
opportunity to realize a premium over the then prevailing market prices of the
Common Shares. Such provisions include the following:
Stock Ownership Limit in the Declaration of Trust Could Inhibit Changes in
Control. In order for the Company to maintain its qualification as a REIT
under the Code, not more than 50% in value of the outstanding shares of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of the Company's taxable year (other than the first year for which the
election to be treated as a REIT has been made). Furthermore, if the holder of
10% or more of the shares or interests in assets or net profits of any lessee
were to own, actually or constructively, 10% or more in value of the shares of
the Company, the lessee could become a Related Party Tenant (as defined in
"Federal Income Tax Consequences--Requirements for Qualification as a REIT--
Income Tests") of the Company, which could result in loss of REIT status for
the Company. For the purpose of preserving the Company's REIT qualification,
among other reasons, the Company's Declaration of Trust prohibits direct or
indirect ownership (taking into account applicable ownership provisions of the
Code) of more than 9.8% of any class of the Company's outstanding shares by
any person (the "Ownership Limitation"). Generally, the shares owned by
affiliated owners will be aggregated for purposes of the Ownership Limitation.
Although the Board of Trustees presently has no intention of doing so, the
Board of Trustees could waive these restrictions if evidence satisfactory to
the Board of Trustees and the Company's tax counsel were presented that the
changes in ownership would not then or in the future jeopardize the Company's
status as a REIT and the Board of Trustees otherwise decided such action would
be in the best interests of the Company. Shares acquired or transferred in
breach of the limitation will be automatically transferred to a trust for the
exclusive benefit of one or more charitable organizations and the purchaser-
transferee shall not be entitled to vote or to participate in dividends or
other distributions. In addition, Common Shares acquired or transferred in
breach of the limitation may be purchased from such trust by the Company for
the lesser of the price paid and the average closing price for the
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ten trading days immediately preceding redemption. A transfer of shares to a
person who, as a result of the transfer, violates the Ownership Limitation
will be void.
The Ownership Limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company in which
holders of some, or a majority, of the Common Shares might receive a premium
for their Common Shares over the then prevailing market price or which such
holders might believe to be otherwise in their best interests. See "Shares of
Beneficial Interest--Restrictions on Transfer" and "Federal Income Tax
Consequences--Requirements for Qualification as a REIT."
Potential Effects of Staggered Board Could Inhibit Changes in Control. The
Board of Trustees will be divided into three classes of trustees. The initial
terms of the first, second and third classes will expire in 1999, 2000 and
2001, respectively. Trustees of each class will be chosen for three year terms
upon the expiration of the current class terms, and, beginning in 1999 and
each year thereafter, one class of trustees will be elected by the
shareholders. A trustee may be removed, with or without cause, by the
affirmative vote of 75.0% of the votes entitled to be cast for the election of
trustees, which super-majority vote may have the effect of delaying, deferring
or preventing a change of control of the Company. The staggered terms of
trustees may reduce the possibility of a tender offer or an attempt to change
control of the Company even though a tender offer or change in control might
be in the best interests of the shareholders. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws--Number of
Trustees; Classification of the Board of Trustees."
Issuances of Preferred Stock Could Inhibit Changes in Control. The
Declaration of Trust authorizes the Board of Trustees to issue up to 20
million preferred shares, $.01 par value per share (the "Preferred Shares"),
to reclassify unissued shares, and to establish the preferences, conversion
and other rights, voting powers, restrictions, limitations and restrictions on
ownership, limitations as to dividends or other distributions, qualifications,
and terms and conditions of redemption for each such class or series of any
Preferred Shares issued. No Preferred Shares will be issued or outstanding as
of the closing of the Offering.
Certain Provisions of Maryland Law Could Inhibit Changes in Control. Under
the Maryland General Corporation Law, as amended (the "MGCL"), certain
"business combinations" (including certain issuances of equity securities)
between a Maryland REIT such as the Company and any person who owns 10% or
more of the voting power of the REIT's shares or an affiliate thereof are
prohibited for five years after the most recent date on which the interested
shareholder became an interested shareholder. Thereafter, any such business
combination must be approved by two super-majority votes unless, among other
conditions, the REIT's common shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form as previously paid by the interested shareholder for its common
shares. See "Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws--Business Combinations."
Effect of Maryland Control Share Acquisition Statute. In addition to certain
provisions of the Declaration of Trust, the Maryland control share acquisition
statutes may have the effect of discouraging a third party from making an
acquisition proposal for the Company. The MGCL provides that "control shares"
of a Maryland corporation acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes eligible under the statute to be cast on the matter. "Control shares"
are voting shares, which, if aggregated with all other such shares previously
acquired by the acquiror or in respect of which the acquiror is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing trustees within one of the following ranges of voting power: (i) one-
fifth or more but less than one-third, (ii) one-third or more but less than a
majority, or (iii) a majority of all voting power. Control shares do not
include shares that the acquiring person is then entitled to vote as a result
of having previously obtained shareholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
If voting rights are not approved at a meeting of shareholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
control shares (except those for which voting rights have
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previously been approved) for fair value. If voting rights for control shares
are approved at a shareholders' meeting and the acquiror becomes entitled to
vote a majority of the shares entitled to vote, all other shareholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition.
The Company's Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any persons of shares of the
Company. There can be no assurance that such provision will not be amended or
eliminated at any point in the future. If the foregoing exemption in the
Company's Bylaws is rescinded, the control share acquisition statute could
have the effect of delaying, deferring, preventing or otherwise discouraging
offers to acquire the Company and of increasing the difficulty of consummating
any such offer.
Approval of Unitholders Required for Certain Business Combinations. The
Partnership Agreement provides that the Company may not generally engage in
any merger, consolidation or other combination with or into another person or
sale of all or substantially all of its assets, or any reclassification, or
any recapitalization or change of outstanding Common Shares (a "Business
Combination"), unless the holders of Units will receive, or have the
opportunity to receive, the same consideration per Unit as holders of Common
Shares receive per Common Share in the transaction; if holders of Units will
not be treated in such manner in connection with a proposed Business
Combination, the Company may not engage in such transaction unless Unitholders
holding more than 50% of the Units vote to approve the Business Combination.
In addition, as provided in the Partnership Agreement, the Company will not
consummate a Business Combination with respect to which the Company conducted
a vote of the shareholders unless the matter would have been approved had
holders of Units been able to vote together with the shareholders on the
transaction. The foregoing provisions of the Partnership Agreement would under
no circumstances enable or require the Company to engage in a Business
Combination which required the approval of the Company's shareholders if the
Company's shareholders did not in fact give the requisite approval. Rather, if
the Company's shareholders did approve a Business Combination, the Company
would not consummate the transaction unless (i) the Company as general partner
first conducts a vote of Unitholders (including the Company) on the matter,
(ii) the Company votes the Units held by it in the same proportion as the
shareholders of the Company voted on the matter at the shareholder vote and
(iii) the result of such vote of the Unitholders (including the proportionate
vote of the Company's Units) is that had such vote been a vote of
shareholders, the Business Combination would have been approved by the
shareholders. As a result of these provisions of the Partnership Agreement, a
third party may be inhibited from making an acquisition proposal that it would
otherwise make, or the Company, despite having the requisite authority under
its Declaration of Trust, may not be authorized to engage in a proposed
Business Combination.
CHANGES IN MARKET INTEREST RATES COULD ADVERSELY AFFECT THE MARKET PRICE OF
THE COMMON SHARES. One of the factors that may influence the price of the
Common Shares in public trading markets will be the annual yield from
distributions by the Company on the Common Shares as compared to yields on
certain financial instruments. Thus, an increase in market interest rates will
result in higher yields on certain financial instruments, which could
adversely affect the market price of the Common Shares.
PURCHASERS OF COMMON SHARES IN THE OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL BOOK VALUE DILUTION. As set forth more fully under "Dilution," the
pro forma net tangible book value per Common Share of the assets of the
Company after the Offering will be substantially less than the expected
initial public offering price per Common Share in the Offering. Accordingly,
purchasers of the Common Shares offered hereby will experience immediate and
substantial dilution of $2.32 per share in the net tangible book value of the
Common Shares from the initial public offering price. See "Dilution."
AVAILABILITY OF COMMON SHARES FOR FUTURE SALE COULD ADVERSELY AFFECT THE
PRICE OF THE COMMON SHARES. Upon the completion of the Offering, the Company
will have outstanding 15,112,122 Common Shares (17,242,122 Common Shares if
the Underwriters' over-allotment option is exercised in full). In addition,
3,181,723 Common Shares are reserved for issuance upon exchange of Units
issued to the Contributors. The
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<PAGE>
Common Shares issued in the Offering will be freely tradable by persons other
than "affiliates" of the Company without restriction under the Securities Act,
subject to the limitations on ownership set forth in this Prospectus.
Following the Offering, the Company intends, subject to market conditions,
to increase its capital resources through additional offerings of Common
Shares. Such offerings may result in dilution of the equity of shareholders of
the Company or reduction of the market price of the Common Shares, or both.
The amount, timing or nature of future sales of Common Shares will depend upon
the general economic environment, market conditions and numerous other
factors, none of which can be predicted.
Sales of a substantial number of Common Shares (including Common Shares
issued upon the exercise of options or share purchase rights or in redemption
of Units issued to the Contributors), or the perception that such sales could
occur, could adversely affect prevailing market prices of the Common Shares.
In connection with the Formation Transactions approximately 912,122 restricted
Common Shares and 3,181,723 Units will be issued in addition to the Common
Shares sold by the Company in the Offering. None of the Contributors may
exchange such Units for Common Shares for one year from the closing of the
Offering. See "Structure and Formation of the Company." The Company, its
officers and trustees, the Advisor and the Contributors have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any Units or Common Shares of the
Company, or any securities convertible or exercisable or exchangable for any
Units or Common Shares of the Company for the applicable holding period (other
than pursuant to the Share Option Plan and the share purchase rights granted
to the Contributors), for a period of 180 days in the case of the Company, and
one year in the case of the Company's officers and trustees, the Advisor and
the Contributors, from the closing of the Offering, without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters,
subject to certain limited exceptions. Prudential Securities Incorporated may,
in its sole discretion, at any time and without notice, release all or any
portion of the Common Shares or Units subject to the foregoing lock-up
agreements. See "Shares Eligible for Future Sale." At the conclusion of such
period, the restricted Common Shares, any Common Shares issued upon redemption
of Units and the shares purchased in the Offering may be sold in the public
market pursuant to registration rights granted by the Company or available
exemptions from registration. In addition, approximately 1,305,569 Common
Shares will be reserved for issuance pursuant to the Company's share purchase
rights, the option grant to the Advisor and the Share Option Plan and, when
issued, these shares will be available for sale in the public markets from
time to time pursuant to exemptions from registration requirements or upon
registration. Certain of such Common Shares are required to be registered
under registration rights agreements. No prediction can be made about the
effect, if any, that future sales of Common Shares will have on the market
price of the Common Shares.
All Common Shares (including Common Shares that are issuable upon the
exchange of Units) and Units issued to the Contributors in connection with the
Formation Transactions will be deemed to be "restricted securities" within the
meaning of Rule 144 under the Securities Act and may not be transferred unless
such Common Shares are registered under the Securities Act or an exemption
from registration is available, including any exemption from registration
provided under Rule 144. In general, upon satisfaction of certain conditions,
Rule 144 permits the sale of certain amounts of restricted securities one year
following the date of acquisition of the restricted securities from the
Company and, after two years, permits unlimited sales by persons unaffiliated
with the Company.
SHAREHOLDER APPROVAL IS NOT REQUIRED TO CHANGE POLICIES OF THE
COMPANY. Shareholders will have no right or power to take part in the
management of the Company except through the exercise of voting rights on
certain specified matters. The Board of Trustees will be responsible for
directing the management of the business and affairs of the Company. The major
policies of the Company, including its policies with respect to acquisitions,
financing, growth, operations, debt capitalization and distributions, will be
determined by its Board of Trustees. The Board of Trustees may amend or revise
these and other policies from time to time without a vote of the shareholders
of the Company. See "Policies and Objectives with Respect to Certain
Activities."
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<PAGE>
THE COMPANY
The Company, which intends to operate as a REIT for Federal income tax
purposes, has been formed to own hotel properties and to continue and expand
the hotel property investment activities of LaSalle on an exclusive basis. The
Company will be managed and advised by the Advisor, a wholly owned subsidiary
of LaSalle. Upon completion of the Offering and the Formation Transactions,
the Company will own, through the Operating Partnership, three convention, two
resort, and five business oriented full service hotels, located in ten
different markets in eight states containing an aggregate of 3,379 guest
rooms, and will seek to selectively acquire and develop additional hotel
properties, particularly upscale and luxury full service hotels located in
convention, resort and major urban business markets. Seven of the Initial
Hotels will be leased to independent lessees (affiliates of whom will also
operate those Initial Hotels) and three of the Initial Hotels will be leased
to an Affiliated Lessee under Participating Leases which provide for the
payment of the greater of a base rent or participating rent and are designed
to allow the Company to achieve substantial participation in revenue growth at
the Initial Hotels. All ten of the Initial Hotels will be managed by
independent, unaffiliated Operators.
The Company believes that it can be distinguished from other real estate
companies and REITs that are focused on the ownership of hotel properties in
the following major respects:
. Reputation, Experience and Resources of LaSalle. LaSalle is an
institutionally respected real estate services and investment firm which
has extensive experience in the acquisition, investment management,
finance, development and disposition of hotel properties, including over
$500 million of hotel acquisitions and investments since 1994 and over
$500 million of new hotel development. Through the Advisor, LaSalle will
provide the Company with hotel investment advisory services on an
exclusive basis, including domestic and international acquisitions,
research, due diligence, investment management, accounting, finance,
risk management and human resources.
. Focus on Convention, Resort and Major Urban Business Markets. Consistent
with the historical focus of the Advisor and with the Initial Hotels,
the Company will be primarily focused on investments in hotels located
in convention, resort and major urban business markets, which management
believes will continue to benefit from the recovery in the hotel sector.
Within these markets, the Company will be primarily focused on upscale
and luxury full service hotels. Convention, resort and urban business
hotels, the full service sector of these hotel markets generally, and
the upscale and luxury segments in particular, have experienced the
least amount of new supply and have the highest barriers to entry as a
result of high per property costs, high per room development costs
(relative to the price per room at which such hotels can be purchased)
and long lead times for new development.
. Multiple Independent, Unaffiliated Operators. The Company believes that
the exclusive use of independent, unaffiliated hotel operators
eliminates the potential for serious conflicts of interest which have
existed in other hotel REITs. Additionally, the use of multiple
operators provides diversification and creates a network of operators
that is expected to continue to generate acquisition opportunities for
the Company. The Company intends to continue to develop its
relationships with premier internationally recognized hotel operating
companies such as Marriott(R), Radisson(R) and Le Meridien(R) and other
nationally respected operating companies.
. Acquisition of Hotel Properties Subject to Long-Term Agreements. The
Company believes that many of its competitors for hotels are focused
primarily on properties that can be acquired free of long-term
management and/or franchise agreements. Unlike these competitors, the
Company intends to use a variety of unaffiliated operators, and as a
result will pursue acquisitions of hotel properties solely based on
their investment potential. The Company believes there will be less
competition for the acquisition of hotel properties subject to long-term
management and/or franchise agreements, enabling such properties to be
acquired at relatively attractive multiples of cash flow and discounts
to replacement cost. Generally, the Company will seek to have the
operators of these and its other hotels become lessees and invest in
Units of the Operating Partnership or in the Common Shares of the
Company. All of the independent unaffiliated Lessees/Operators of the
Initial Hotels will own Common Shares or Units which upon completion of
the Offering will total 594,943 Common Shares and Units. Where the
Operator declines to serve as the lessee for a hotel on account of
internal policy or other reasons (as with three of the Initial Hotels
operated by Marriott), the Company will lease the hotel to an affiliated
lessee on terms designed to maximize the Company's participation in the
revenue growth of the hotel in a manner consistent with the Company's
status as a REIT.
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<PAGE>
BUSINESS AND GROWTH STRATEGIES
The Company's primary objectives are to maximize current returns to its
shareholders through increases in Cash Available for Distribution and to
increase long-term total returns to shareholders through appreciation in the
value of its Common Shares. To achieve these objectives, the Company will seek
to (i) invest in or acquire additional hotel properties on favorable terms and
(ii) enhance the return from, and the value of, the Initial Hotels and any
additional hotels. The Initial Hotels and any additional hotels will be
subject to Participating Leases which will allow the Company to participate in
increased revenues from the hotels pursuant to participating rent payments.
The Company will seek to achieve revenue growth principally through (i)
acquisitions of full service hotel properties located in convention, resort
and major urban business markets in the U.S. and abroad, especially upscale
and luxury full service hotels in such markets and where the Company, through
LaSalle's extensive research and local market experience, perceives strong
demand growth or significant barriers to entry, (ii) renovations and/or
expansions at certain of the Initial Hotels, and (iii) selective development
of hotel properties, particularly upscale and luxury full service properties
in high demand markets where development economics are favorable.
ACQUISITION STRATEGIES FOR FUTURE GROWTH
The Company's hotel acquisition strategies for future growth have been
developed with the benefit of the proprietary research and experience of
LaSalle's investment research group. LaSalle's research group assists the
Company in the formulation of its acquisition and investment management
strategies through the research and analysis of four interrelated areas which
are likely to affect the future performance of hotel properties. These areas
of research are:
.socioeconomic, business and technological trends;
.capital markets flows;
.regional economic trends; and
.property market fundamentals.
Utilizing this research the Company has created hotel acquisition strategies
and identified specific markets for future investment. In creating this future
investment strategy and identifying potential future markets the Company has
focused on:
. Convention Markets and Convention Oriented Hotels. Convention markets
and convention oriented hotels have benefited from the growth in room
demand generated by the increases in the number of conventions and
convention attendees since 1991. From 1991 to 1995, the most recent
period for which information is available, the number of conventions
held increased by 6.9% and the number of convention attendees increased
by 51.2%, according to Meetings and Conventions Magazine. As a result of
this growth and to accommodate projected growth, the number and size of
convention facilities in the U.S. are projected to continue to increase.
Hotels in convention markets are direct beneficiaries of this growth.
. Resort Markets and Resort Hotels. Resorts have experienced increased
demand resulting from higher levels of discretionary spending devoted to
travel and leisure activities. The higher levels of leisure spending
have been fueled by the demographic shift in the U.S. population,
resulting in a growing number and percentage of individuals in the
higher leisure spending age groups as well as by the sustained economic
recovery in the U.S. The Company believes that the projected
demographics in the U.S. will continue to benefit resort markets. Many
resort markets also have significant barriers to entry, including
limited availability of land for hotel development and environmental
impact issues.
. Major Urban Business Markets. Major urban business markets are
continuously identified and ranked by LaSalle's research, based on
factors which are expected to favorably impact hotel room demand,
including projections of: growth in gross metropolitan product ("GMP")
and employment; the breadth
34
<PAGE>
and diversification of the components of the GMP; migration of
population and businesses in and out of the market area; local
infrastructure investment; and the frequency and capacity of the airline
service to each market. Initially, the Company's efforts will be
primarily focused on acquiring urban hotels located in its targeted
business markets.
. Upscale and Luxury Full Service Sectors. Convention, resort and urban
business hotels, the full service hotel sector generally, and the
upscale and luxury segments thereof in particular, have experienced the
least amount of new supply and have the highest barriers to entry as a
result of high per property costs, high per room development costs
(relative to the price per room at which such hotels can be purchased)
and long lead times for new development.
The Company intends to finance the acquisition of additional hotel properties
with borrowings under the Line of Credit, other borrowings or from the proceeds
of additional issuances of Common Shares or other securities. There can be no
assurance that the Company will be able to obtain such financing on acceptable
terms.
While no assurance can be given as to future results, based on the research
described above, the Company believes that upscale and luxury full service
hotels located in selected convention, resort and major urban business markets
will outperform all other sectors of the hotel industry over the next several
years. These sectors and markets are regularly analyzed to determine the
likelihood and amount of new hotel room supply. By comparing the room demand
and supply and balancing the risks of each market, the Company will target
markets where it will focus its acquisition efforts. The Company intends to
acquire additional hotel properties in its targeted markets consistent with the
investment fundamentals outlined above and which meet one or more of the
following criteria:
. hotels that benefit from unique competitive advantages in the form of
location, physical facilities or other attributes which cannot be easily
or affordably replicated;
. hotels available at significant discounts to replacement cost, including
when such discounts result from reduced competition for properties with
long-term management and/or franchise agreements;
. hotels that the Company believes possess sound operating fundamentals
but are underperforming and would benefit from brand or franchise
conversion, new management, renovation or redevelopment or other active
and aggressive asset management strategies;
. hotels that offer significant expansion opportunities on a basis that
the Company believes will provide an attractive return on its
investment;
. portfolios of hotels that exhibit some or all of the criteria discussed
above, where purchasing several hotels in one transaction would enable
the Company to obtain a favorable price or to purchase attractive hotels
that otherwise would not be available to the Company; and
. upscale and luxury full service hotel properties located outside of the
United States (initially Canada, Mexico, Europe and Central and South
America, in particular) that are available for purchase in a joint
venture or alliance with major independent or hotel brand operating
companies.
The Company intends to capitalize on LaSalle's significant industry and
national presence and relationships with numerous hotel operators and
franchisors, institutional investors and other hotel owners and brokers, in
order to access acquisition opportunities not readily available or widely
marketed. Since the beginning of 1994, the Advisor has completed 15 hotel
acquisitions or investments aggregating over $500 million, most of which were
negotiated transactions or were marketed on a limited basis. Many of these
opportunities resulted from the Advisor's relationships with different
operators who sought a relationship with LaSalle. The Company believes that
having multiple operators will facilitate the implementation of its growth
strategy. In addition to the five different Operators of the Initial Hotels,
the Company believes that there are a number of other capable operators who
desire to have a relationship with the Company and who could generate
acquisition opportunities for the Company. Also, the Company believes that
certain additional hotel brand owners who also operate their hotels are
interested in developing a relationship with the Company and may become lessees
as a means of expanding their brands.
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<PAGE>
INTERNAL GROWTH STRATEGIES
The Initial Hotels have demonstrated strong internal growth, resulting from
improved market conditions as well as from active asset management by LaSalle.
Management believes that, based on the favorable historical operating results
of the Initial Hotels, the strength of LaSalle's and the Lessee/Operators'
existing management teams and the structure of the Participating Leases, the
Initial Hotels should provide the Company with the opportunity for significant
revenue growth. In addition, the Company believes that the Initial Hotels will
continue to benefit from favorable market conditions, recent and planned
capital improvements, repositionings and expansions. The Company believes that
it has structured and negotiated its business relationships with the Lessees
and the Operators, including the investments by certain Lessees in the
Company, as well as the Participating Leases, to provide incentives to the
Lessees/Operators to operate and maintain the Initial Hotels in a manner that
will maximize revenue growth and the Company's Cash Available for
Distribution. As a number of factors could affect revenue growth at the
Initial Hotels, however, no assurance can be given that any such revenue
growth will occur.
For the period January 1, 1995 through December 31, 1997, approximately
$27.1 million of capital improvements have been made at the Initial Hotels. In
addition, upon completion of the Offering the Company expects to have
approximately $9.9 million reserved to supplement annual capital reserves and
to fund planned renovations at certain of the Initial Hotels. In addition to
planned expansions, recent, ongoing and planned major improvements include:
. During the past three years, at the Holiday Inn Plaza Park, substantial
upgrades were completed to its rooms, corridors and public areas in
excess of $1.8 million, and the Company plans to invest an additional
$586,000 in 1998 to complete the repositioning of the hotel;
. Over $1.6 million was expended at Le Montrose All Suite Hotel De Gran
Luxe during the past three years to reposition and upgrade the hotel,
and convert long-term tenant units to hotel use;
. During the period 1995 through 1997, $5.2 million was expended at the
LaGuardia Airport Marriott to replace guest room soft goods, renovate
bathrooms and public spaces, and replace windows throughout the hotel;
. During the period 1996 through 1997, the Holiday Inn Beachside Resort
benefitted from the completion of a $1.8 million refurbishment of the
public space, guest rooms and exterior of the buildings;
. Over $1.0 million was expended in 1997 and the first quarter of 1998 to
reconcept and renovate the restaurant, and upgrade the ballroom/meeting
spaces and the lobby at the Omaha Marriott Hotel;
. During the period 1996 through 1997, $2.8 million was spent at the
Radisson Hotel South and Plaza Tower to renovate 166 guest rooms,
complete the conversion of over 11,000 square feet of retail space to
upscale meeting space, renovate one food and beverage outlet and to
enhance the main entrance;
. In 1997, an extensive three-year $6.4 million renovation at Le Meridien
New Orleans began, including significant technological enhancements, a
complete renovation of the guest rooms and suites and upgrades to the
public areas;
. During 1998, over $3.9 million is expected to be spent at Le Meridien
Dallas to complete the renovation of the guest rooms and upgrade the
physical plant;
. In 1998 and 1999, the Company plans to invest over $8.0 million to
upgrade the golf courses and renovate the interior spaces of the
Marriott Seaview Resort, including the guest rooms, ballroom and meeting
spaces, lobby and public areas; and
. In 1998 and 1999, the Company plans to invest over $3.2 million at the
Radisson Tampa East Hotel to provide for technological enhancements and
the refurbishment of the guest rooms, public spaces, meeting spaces,
exterior of the building, and landscaping. The Company also expects to
make improvements in connection with the change in the hotel's chain
affiliation.
36
<PAGE>
Additionally, the Company is reviewing plans to expand certain of the
Initial Hotels. Management believes that such expansions generally represent
relatively lower risk, lower cost and higher yielding investment opportunities
than new development due to the Company's ability to leverage off existing
hotel infrastructure, established market presence and operational economies of
scale. Of the Initial Hotels, one has a major expansion opportunity consisting
of 100 rooms and 9,800 square feet of meeting space, and three have minor
expansion opportunities aggregating approximately 28 rooms and 10,000 square
feet of meeting space.
More specifically, LaSalle has completed a feasibility analysis and initial
plans, and anticipates initiating construction in the next 12 months, of an
expansion to the Omaha Marriott Hotel, consisting of 100 rooms and
approximately 9,800 square feet of meeting space. The expansion is currently
projected to cost approximately $15.0 million, including a remaining fee of
$429,000 which will be paid to LaSalle for its development services, pursuant
to its contract with the existing owners of the hotel, which contract will be
assigned to the Company. Management believes that the expansion will enhance
the competitiveness of the hotel in the market, increase revenues and provide
an attractive return on investment.
The minor expansion opportunities include up to 20 rooms in the Le Meridien
Dallas (11 of which have been completed in the first quarter of 1998); four
suites at Le Montrose All Suite Hotel De Gran Luxe in West Hollywood,
California; four rooms at the Radisson Tampa East Hotel (all of which are
expected to be completed in 1998); and 10,000 square feet of meeting space at
the Marriott Seaview Resort outside of Atlantic City, New Jersey. The Company
anticipates that such expansions will cost approximately $6.1 million in the
aggregate.
The Company believes a regular program of capital improvements, including
replacement and refurbishment of FF&E at the Initial Hotels, as well as the
periodic renovation and redevelopment of certain of the Initial Hotels will
maintain the competitiveness of the Initial Hotels and maximize revenue
growth.
Each Participating Lease requires the Company to establish and fund monthly
reserves of between 4.0% and 5.5% of total revenues which, for the year ended
December 31, 1997, aggregated approximately 7.3% of room revenue or an average
of approximately $2,200 per guest room for the Initial Hotels. The reserves
will be utilized by the Lessees in the replacement and refurbishment of FF&E
and other capital expenditures necessary to maintain the competitive position
of the Initial Hotels. The Company and the Lessees and Operators will agree on
the use of the funds in this reserve, and the Company will have the right to
approve the Lessees'/Operators' annual and long-term capital expenditure
budgets; provided, however, with respect to the Initial Hotels which are
operated by Marriott International Inc. ("Marriott"), the Company together
with the Affiliated Lessee and Marriott will jointly agree upon the annual and
long-term capital expenditure budgets. While the Company expects its reserves
to be adequate to fund recurring capital needs, the Company may use Cash
Available for Distribution in excess of distributions paid (subject to Federal
income tax restrictions on the Company's ability to retain earnings) or funds
drawn under the Line of Credit to fund additional capital improvements, as
necessary, including major renovations or expansions at the Company's hotels.
DEVELOPMENT
While the Company does not currently anticipate undertaking a substantial
amount of new development, management has significant experience in the
development and renovation of hotels and other real estate properties,
gathered over the last 17 years. Jon E. Bortz, the Chief Executive Officer and
President of the Company and the Chairman and Chief Executive Officer of the
Advisor, has overseen over $1 billion of development and redevelopment
projects, including upscale and luxury full service hotel development or
renovation projects representing over $500 million of new investment dollars.
Mr. Bortz's hotel development experience includes the successful completion
and opening of the 370 room super-luxury Four Seasons New York Hotel in New
York City and the 259 room luxury full service Inn at Penn currently under
construction on the campus of the University of Pennsylvania in Philadelphia.
The Advisor believes its senior management is well qualified to identify and
underwrite new hotel development opportunities, but anticipates utilizing
outside development specialists, including LaSalle, to
37
<PAGE>
implement such development activities, and paying fair market compensation for
such services. LaSalle has overseen and implemented over 90 million square
feet of new development or redevelopment projects in the last 30 years
throughout the United States.
Should the Company retain LaSalle to provide development services, the
terms, conditions and pricing of these services will be subject to approval by
a majority of the independent trustees of the Company.
FINANCING STRATEGIES
Upon completion of the Offering, the Company will have a debt to total
market capitalization ratio of approximately 9.9% and, accordingly, believes
it will have access to various types of financing, including debt and equity
securities offerings and secured and unsecured borrowings sufficient to enable
it to actively pursue growth opportunities. The Company has a commitment from
the Banks and anticipates entering into the unsecured $200 million Line of
Credit concurrently with the consummation of the Offering. The Line of Credit
is intended primarily to fund future acquisitions, renovations and expansions
of hotel properties and for working capital requirements. While its
organizational documents contain no limitation on the amount of debt it may
incur, the Company, subject to the discretion of the Board of Trustees,
currently has a policy of incurring debt only if upon such incurrence the
Company's debt to total market capitalization ratio would be 45% or less. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Shares in the
Offering, after the deduction of underwriting discounts and commissions are
estimated to be approximately $264.1 million (approximately $303.7 million if
the Underwriters' over-allotment option is exercised in full). In connection
with the Formation Transactions, the Company will contribute the net proceeds
from the Offering to the Operating Partnership and the Operating Partnership
will borrow approximately $40.3 million under the Line of Credit. The
Operating Partnership will use the estimated net proceeds of the Offering, the
initial borrowings under the Line of Credit and the other funds identified
below as follows:
. Approximately $202.3 million (including repayment fees aggregating
approximately $3.3 million) will be used to repay certain mortgage and
other indebtedness related to the Initial Hotels and held by third-party
lenders ($40.3 million of which will be funded from borrowings under the
Line of Credit);
. Approximately $47.2 million to acquire the ownership interests in the
Initial Hotels (excluding the LaGuardia Airport Marriott) from third
parties;
. Approximately $45.5 million to acquire the LaGuardia Airport Marriott;
. Approximately $9.9 million for deposit into capital expenditure reserve
accounts to fund property renovations (approximately $7.8 million of
which will be supplied by reserve accounts of the Initial Hotels
acquired in the Formation Transactions); and
. Approximately $7.3 million will be used to pay expenses in connection
with the Offering and the Formation Transactions, including commitment
fees relating to the Line of Credit, and for working capital purposes.
If the Underwriters' over-allotment option is exercised in full, the Company
will use the net proceeds to acquire additional Units, and the Operating
Partnership will use the funds it receives from the Company for working
capital and general corporate purposes, including future acquisitions and
renovations and expansions of certain Initial Hotels, or to repay indebtedness
under the Line of Credit. See the Pro Forma Consolidated Balance Sheet and the
Pro Forma Consolidated Statement of Operations included elsewhere in this
Prospectus for the pro forma effects of the foregoing transactions and debt
reduction under certain assumptions described therein.
The following table sets forth certain information concerning the
indebtedness expected to be outstanding and repaid with the net proceeds of
the Offering:
<TABLE>
<CAPTION>
EXPECTED BALANCE TO BE
REPAID WITH THE ESTIMATED NET
PROCEEDS OF THE OFFERING
INITIAL HOTEL INTEREST RATE(1) MATURITY DATE (DOLLARS IN MILLIONS)(2)
- ------------- ---------------- ------------- -----------------------------
<S> <C> <C> <C>
Radisson Hotel South and
Plaza Tower............ LIBOR + 4.25% December 2000 $ 26.8
Le Meridien New Or-
leans.................. LIBOR + 3.50% June 2000 38.3
Le Meridien Dallas...... LIBOR + 3.25% October 2000 12.1
Marriott Seaview Re-
sort................... LIBOR + 3.00% December 2000 42.9
Holiday Inn Beachside
Resort................. LIBOR + 3.25% August 2000 18.1
Omaha Marriott Hotel.... LIBOR + 2.50% December 2001 16.1
Radisson Tampa East Ho-
tel.................... LIBOR + 2.00% February 1999 21.3(3)
Holiday Inn Plaza Park.. LIBOR + 2.00% February 1999 7.4(3)
Le Montrose All Suite De
Gran Luxe.............. LIBOR + 2.00% February 1999 19.3(3)
------
Total............... $202.3
======
</TABLE>
- --------
(1) London Interbank Offered Rates ("LIBOR"), refers to one-month LIBOR except
for Radisson Hotel South and Plaza Tower, which is based on three-month
LIBOR.
(2) Amounts may change due to amortization.
(3) To be received by an affiliate of Prudential Securities Incorporated in
repayment of amounts outstanding under the Bridge Loan.
Pending application of the net proceeds of the Offering, the Operating
Partnership will invest such proceeds in short-term interest-bearing
investment grade securities which will be selected to permit the Company to
qualify as a REIT for Federal income tax purposes.
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DISTRIBUTION POLICY
The Company presently intends to make regular quarterly distributions to its
shareholders. The Company intends to declare and pay a pro rata distribution
with respect to the period commencing on the completion of the Offering and
ending on June 30, 1998, based upon $0.375 per share for a full quarter. On an
annualized basis, this would equal $1.50 per share, or an annual distribution
rate of approximately 7.5% based on the assumed initial public offering price
per share of $20.00. For the year ended December 31, 1997, this estimated
initial distribution represents approximately 103.6% of pro forma estimated
Cash Available for Distribution. The holders of Units will be entitled to
distributions per Unit which are equal to the distributions payable on a per
share basis with respect to the Common Shares. The Company does not intend to
reduce the expected distribution per share if the Underwriters' over-allotment
option is exercised in whole or in part resulting in an increase in the number
of Common Shares outstanding on account of such exercise. See "Partnership
Agreement."
The following table sets forth certain pro forma financial information for
the Company for the year ended December 31, 1997:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Pro forma net income applicable to common sharehold-
ers................................................. $13,603
Depreciation, net of minority interest............... $13,862
-------
Pro forma Funds from Operations...................... $27,465
Less: Additions to capital expenditure reserves(1)... $(6,138)
Amortization of debt issuance costs included in in-
terest expense...................................... $ 550
-------
Estimated Cash Available for Distribution(2)......... $21,877
-------
Estimated initial annual distribution(3)............. $22,668
Estimated initial annual distribution per share...... $ 1.50
Estimated payout ratio of Cash Available for Distri-
bution(4)........................................... 103.6%
</TABLE>
- --------
(1) Represents the Company's obligation under the Participating Leases
(adjusted to exclude the minority interest obligation and to reflect the
Company's ownership percentage in the Operating Partnership of 82.6%) to
reserve and pay for capital improvements (including the replacement or
refurbishment of FF&E) on a pro forma basis for the year ended December
31, 1997.
(2) The amount of Cash Available for Distribution if the Operating Partnership
received only the Base Rent paid under the Participating Leases is
estimated to equal $12.4 million.
(3) Based on 15,112,122 Common Shares outstanding upon completion of the
Formation Transactions. Represents 82.5% of FFO. FFO, as defined by
NAREIT, represents net income applicable to common shareholders (computed
in accordance with generally accepted accounting principles), excluding
gains (losses) from debt restructuring and sales of property (including
furniture and equipment), plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs), and
after adjustments for unconsolidated partnerships and joint ventures.
Funds from Operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles, is
not necessarily indicative of cash flow available to fund cash needs and
should not be considered as an alternative to net income as an indication
of performance or to cash flow as a measure of liquidity. The Company
considers FFO to be an appropriate measure of the performance of an equity
REIT in that such calculation is a measure used by the Company to evaluate
its performance against its peer group and is a basis for making the
determination as to the allocation of its resources and reflects the
Company's ability to meet general operating expenses. Additionally, the
incentive compensation payable to the Advisor is based upon growth in FFO
per share. Although Funds from Operations has been computed in accordance
with the current NAREIT definition, Funds from Operations as presented may
not be comparable to other similarly titled measures used by other REITs.
(4) Represents the anticipated initial aggregate annual distribution divided
by estimated Cash Available for Distribution.
40
<PAGE>
The primary source of proceeds to be used for distributions to shareholders
is the Company's share of the rents due the Operating Partnership pursuant to
the Participating Leases. The anticipated revenue may or may not be realized
or collected. Accordingly, the statements set forth above with regard to
distributions are forward-looking statements involving certain risks and
uncertainties that could cause actual results to differ materially from those
expressed in such statements. Important factors that could cause such
different results include, but are not limited to, competition from other
hotels, increases in operating costs, seasonality effects in hotel occupancy
and revenues, and the potential loss of a franchise or brand license in
respect of any Initial Hotel or acquired hotel. See "Risk Factors."
The Company anticipates maintaining its expected initial annual distribution
rate unless actual results of operations, economic conditions or other factors
differ from the estimated Cash Available for Distribution for the 12 months
ended December 31, 1997. The Company's actual Cash Available for Distribution
will be affected by a number of factors, including changes in occupancy, ADR
or other revenues at the Initial Hotels.
The Company anticipates that Cash Available for Distribution will exceed
earnings and profits due to non-cash expenses, primarily depreciation and
amortization, to be incurred by the Company. Distributions by the Company to
the extent of its current or accumulated earnings and profits for Federal
income tax purposes, other than capital gain distributions, will be taxable to
shareholders as ordinary dividend income. Any distributions designated by the
Company as capital gain dividends generally will give rise to capital gain tax
treatment for shareholders. Distributions in excess of the Company's current
or accumulated earnings and profits generally will be treated as a non-taxable
reduction of a shareholder's basis in the Common Shares to the extent thereof,
and thereafter as capital gain. Distributions treated as a non-taxable
reduction in basis will have the effect of deferring taxation until the sale
of a shareholder's Common Shares or future distributions in excess of the
shareholder's basis in the Common Shares. The Company believes that
approximately 16.0% of the Company's expected initial annual distributions for
the 12 month period immediately following the Offering to holders of Common
Shares after the Offering would represent a return of capital for Federal
income tax purposes. If actual Cash Available for Distribution or taxable
income varies from these amounts, the percentage of distributions that
represents a return of capital may be materially different.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its shareholders of at least 95% of its net taxable
income (excluding net capital gains). Under certain circumstances, the Company
may be required to make distributions in excess of Cash Available for
Distribution in order to meet such distribution requirements. In such event,
the Company would seek to borrow the amount of the deficiency or sell assets
to obtain the cash necessary to make distributions to retain its qualification
as a REIT for Federal income tax purposes.
The Board of Trustees, in its sole discretion, will determine the actual
distribution rate based on a number of factors, including the amount of Cash
Available for Distribution, the Company's financial condition, capital
expenditure requirements for the Company's hotels, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Trustees deems relevant. For a discussion of the tax treatment of
distributions to holders of Common Shares, see "Federal Income Tax
Considerations."
41
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (based on
the historical combined financial statements of the Initial Hotels, which
exclude the LaGuardia Airport Marriott) as of December 31, 1997 and pro forma
as adjusted to reflect the Formation Transactions, the Offering and the use of
the estimated net proceeds therefrom and the initial borrowings under the Line
of Credit, as described under "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------
HISTORICAL PRO FORMA
------------ -----------
(UNAUDITED, DOLLARS IN
THOUSANDS)
<S> <C> <C>
Debt:
Short-term debt.................................... $ 1,668 --
Line of Credit(1).................................. -- $ 40,324
Mortgage notes payable............................. 166,943 --
Minority interest.................................... -- 56,581
Shareholders' equity:
Preferred Shares, 20.0 million shares authorized,
no shares issued and outstanding.................. -- --
Common Shares, 100.0 million shares authorized,
15,112,122 shares issued and outstanding, as
adjusted(2)....................................... -- 151
Additional paid-in capital......................... -- 271,768
Retained earnings.................................. 71,384 (3,321)
----------- -----------
Total partners' capital/shareholders' equity(3).... 71,384 268,598
----------- -----------
Total capitalization............................... $ 239,995 $ 365,503
=========== ===========
</TABLE>
- --------
(1) The Company has obtained a commitment for a $200 million revolving Line of
Credit to be entered into concurrently with the completion of the Offering
and anticipates an initial borrowing of $40.3 million.
(2) Does not include Common Shares reserved for issuance in exchange for
3,181,723 Units issued and outstanding after the Offering and 2,130,000
Common Shares issuable upon exercise of the Underwriters' over-allotment
option. A total of 1,305,569 Common Shares also will be reserved for
issuance pursuant to the Company's purchase rights, the option grant to
the Advisor and the Share Option Plan. See "REIT Management." If all such
shares are included, the total number of Common Shares outstanding would
be 21,729,414.
(3) Partners' capital represents the interests of the Contributors and their
predecessors in the Initial Hotels.
42
<PAGE>
DILUTION
Purchasers of the Common Shares offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of the
Common Shares from the initial public offering price. Net tangible book value
per share represents the Company's total tangible assets less total
liabilities divided by the total number of Common Shares outstanding. After
further giving effect to the sale by the Company of the 14,200,000 Common
Shares to be sold by the Company in the Offering (at an assumed initial public
offering price of $20.00 per Common Share, representing the midpoint of the
price range, and after deducting underwriting discounts and commissions and
estimated expenses of the Offering to be paid by the Company), the application
of the estimated net proceeds therefrom as set forth under "Use of Proceeds",
the Formation Transactions and the initial borrowings under the Line of
Credit, the Company's adjusted pro forma net tangible book value per Common
Share as of December 31, 1997 would have been $5.54, representing an immediate
increase of $12.14 in pro forma net tangible book value per share to existing
shareholders and an immediate and substantial dilution of $2.32 per share to
persons purchasing shares in the Offering. The following table illustrates
this dilution per Common Share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price(1)....................... $20.00
Pro forma net tangible book value as of December 31, 1997.... $5.54
Increase in pro forma net tangible book value attributable to
the Offering(2)............................................. 12.14
-----
Pro forma net tangible book value after the Offering(3)........ 17.68
------
Dilution to new investors(4)................................... $ 2.32
======
</TABLE>
- --------
(1) Before deducting the underwriting discounts and commissions and estimated
expenses of the Offering.
(2) Based upon the initial public offering price after the deduction of the
underwriting discounts and commissions and estimated expenses of the
Offering.
(3) Pro forma net tangible book value after the Offering, the Formation
Transactions and the initial borrowings under the Line of Credit, is
determined by dividing the Company's consolidated net tangible book value
of approximately $323.5 million at December 31, 1997 by 18,293,845 Common
Shares and Units outstanding. There is no impact on dilution attributable
to the exchange of Common Shares outstanding.
(4) Dilution is determined by subtracting pro forma net tangible book value
after giving effect to the Offering, the Formation Transactions and the
initial borrowings under the Line of Credit, from the assumed initial
public offering price paid by a new investor for a Common Share.
The following table sets forth the number of Common Shares offered hereby,
the total price to be paid for the Common Shares hereby, the number of Common
Shares and Units to be issued to the Contributors in connection with the
Formation Transactions, the pro forma net book value as of December 31, 1997
attributable to the restricted Common Shares and Units issued to the
Contributors, the book value as of December 31, 1997 of the assets contributed
to the Operating Partnership and the purchase price per Common Share in the
Offering and book value of the contributions per restricted Common Share or
Unit.
<TABLE>
<CAPTION>
COMMON SHARES/
UNITS ISSUED PURCHASE PRICE/
BY THE COMPANY(1) BOOK VALUE OF
-------------------- CASH/BOOK VALUE OF CONTRIBUTIONS
COMMON TOTAL CONTRIBUTIONS PER COMMON
SHARES/UNITS PERCENT TO THE COMPANY SHARE/UNIT
------------ ------- ---------------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Common Shares sold by
the Company in the
Offering............... 14,200,000 77.6% $284,000 $20.00
Restricted Common
Shares................. 912,122 5.0% 18,242 20.00
Rights and options
issued by the Company.. -- -- 3,676 --
Units to be issued to
the Contributors....... 3,181,723 17.4% 17,611(2) 5.54
---------- ------ --------
18,293,845 100.00% $323,529
========== ====== ========
</TABLE>
- --------
(1) Includes Units exchangeable into Common Shares.
(2) Based upon the December 31, 1997 pro forma net tangible book value of the
assets contributed to the Company as adjusted by the underwriting
discounts and commissions and estimated expenses of the Offering and
Formation Transactions.
43
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth unaudited selected pro forma consolidated
financial data for the Company and selected combined historical financial data
for the Initial Hotels (excluding LaGuardia Airport Marriott). This
information should be read in conjunction with the financial statements and
the notes thereto contained elsewhere in this Prospectus. The pro forma
operating data is presented as if the consummation of the Offering and the
related Formation Transactions, the acquisition of the Initial Hotels, and the
application of the estimated net proceeds of the Offering and the initial
borrowings under the Line of Credit (as defined under "Use of Proceeds") had
occurred on January 1, 1997 and all the Initial Hotels had been leased
pursuant to the Participating Leases as of that date and carried forward
through each period presented. The pro forma balance sheet data is presented
as if the aforementioned transactions had occurred on December 31, 1997.
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA(1)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
OPERATING DATA:
Participating Lease revenue:(2)
Affiliated Lessee.............................................. $ 16,979
Other Lessees.................................................. 29,364
Depreciation..................................................... 16,782
Real estate and personal property taxes, property and casualty
insurance....................................................... 6,183
General and administrative(3).................................... 700
Interest(4)...................................................... 3,453
Advisory fees(5)................................................. 2,343
Other............................................................ 414
Minority interest(6)............................................. 2,865
--------
Total expenses and minority interest........................... $ 32,740
Net income applicable to common shareholders..................... $ 13,603
Basic and diluted net income per share........................... $ 0.90
Weighted average number of Common Shares outstanding............. 15,112
<CAPTION>
AS OF
DECEMBER 31,
1997
------------
<S> <C>
BALANCE SHEET DATA:
Investment in hotel properties, net.............................. $352,911
Total assets..................................................... $365,503
Borrowings against Line of Credit................................ $ 40,324
Minority interest(6)............................................. $ 56,581
Shareholders' equity............................................. $268,598
Number of Common Shares outstanding.............................. 15,112
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
CASH FLOW DATA:
Net cash provided by operating activities(7)..................... $ 27,919
Net cash used in investing activities(8)......................... $ (6,138)
Net cash used in financing activities(9)......................... $(22,668)
OTHER DATA:
Funds from Operations(10)........................................ $ 27,465
Funding of capital expenditure reserves(8)....................... (6,138)
Amortization of debt issuance costs.............................. 550
--------
Cash Available for Distribution(11).............................. $ 21,877
Distributions(11)................................................ $ 22,668
</TABLE>
44
<PAGE>
COMBINED INITIAL HOTELS
SELECTED COMBINED HISTORICAL FINANCIAL DATA(12)
(EXCLUDING LAGUARDIA AIRPORT MARRIOTT)
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Revenues:
Room revenue.................................. $ 10,396 $ 28,958 $ 62,007
Food and beverage revenue..................... 4,639 15,553 28,834
Telephone revenue............................. 580 1,258 2,733
Other revenue................................. 810 2,400 4,780
-------- -------- ---------
Total revenue............................... $ 16,425 $ 48,169 $ 98,354
Operating expenses:
Departmental and operating expenses........... $ 12,427 $ 32,769 $ 66,199
Management fees............................... 462 1,861 4,501
Property taxes................................ 404 1,826 3,424
Interest expense.............................. 1,580 4,701 10,745
Depreciation and amortization................. 1,518 5,026 10,206
Advisory fees................................. 231 451 906
-------- -------- ---------
Total expenses.............................. $ 16,622 $ 46,634 $ 95,981
Net income (loss)............................... $ (197) $ 1,535 $ 2,373
BALANCE SHEET DATA:
Investment in hotel properties, net............. $ 60,554 $133,105 $ 222,266
Total assets.................................... $ 67,557 $147,311 $ 251,522
Long-term debt.................................. $ 42,736 $ 94,466 $ 166,943
Partners' capital(13)........................... $ 20,774 $ 45,686 $ 71,384
CASH FLOW DATA:
Net cash provided by operating activities....... $ 1,731 $ 6,949 $ 16,256
Net cash used in investment activities.......... $(48,957) $(79,788) $(107,204)
Net cash provided by financing activities....... $ 48,038 $ 74,147 $ 95,438
OTHER DATA:
Available room nights........................... 206,483 470,939 838,981
</TABLE>
- --------
(1) The pro forma information does not purport to represent what the Company's
or the Initial Hotels' financial position or results of operations would
actually have been if the consummation of the Formation Transactions had,
in fact, occurred on such dates, or to project the Company's or the
Initial Hotels' financial position or the results of operations at any
future date or for any future period.
(2) Represents lease payments from Lessees calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the pro forma
revenues of the Initial Hotels, as though the hotels were acquired January
1, 1997 and leased pursuant to the Participating Leases since that date.
See "The Initial Hotels--The Participating Leases" for the Participating
Lease formulas.
(3) Represents general and administrative expenses for professional fees,
trustees' and officers' insurance, trustee's fees and expenses, and other
expenses associated with operating as a public company.
(4) Represents (i) interest expense at an assumed interest rate of 7.2% on
approximately $40.3 million of pro forma borrowings under the Line of
Credit in connection with the completion of the Formation Transactions,
and (ii) amortization of debt issuance costs associated with the Line of
Credit over the term of the facility.
(5) Represents advisory fees to be paid to the Advisor for management,
advisory and administrative services to be provided to the Company. The
Advisor will receive an annual base fee up to 5% of the Company's net
operating income, as defined, and an annual incentive fee which prior to
January 1, 1999 will be limited to 1% of the Company's net operating
income based on growth in Funds from Operations per share.
(6) Minority interest represents the interest in the Operating Partnership
that will not be owned by the Company and is calculated at approximately
17.4% of the pro forma net income of the Operating Partnership.
45
<PAGE>
(7) Represents net income applicable to common shareholders plus the Company's
share of depreciation and amortization.
(8) Pro forma cash used in investing activities is the Company's share of the
annual reserve for capital improvements at the Initial Hotels required by
the Participating Leases.
(9) Represents estimated initial distributions to be made based on the
estimated dividend rate of $1.50 per share and an aggregate of 15,112,122
Common Shares outstanding.
(10) Funds from Operations, as defined by NAREIT, represents net income
applicable to common shareholders (computed in accordance with generally
accepted accounting principles), excluding gains (losses) from debt
restructuring and sales of property (including furniture and equipment),
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. Funds from Operations
does not represent cash generated from operating activities in accordance
with generally accepted accounting principles, is not necessarily
indicative of cash flow available to fund cash needs and should not be
considered as an alternative to net income as an indication of
performance or to cash flow as a measure of liquidity. The Company
considers FFO to be an appropriate measure of the performance of an
equity REIT in that such calculation is a measure used by the Company to
evaluate its performance against its peer group and is a basis for making
the determination as to the allocation of its resources and reflects the
Company's ability to meet general operating expenses. Additionally, the
incentive compensation payable to the Advisor is based upon growth in FFO
per share. Although Funds from Operations has been computed in accordance
with the current NAREIT definition, Funds from Operations as presented
may not be comparable to other similarly titled measures used by other
REITs. Funds from Operations does not reflect cash expenditures for
capital improvements or principal amortization of indebtedness on the
Initial Hotels.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
-------------
<S> <C>
Pro forma net income applicable to common shareholders......... $13,603
Pro forma depreciation, net of minority interest............... $13,862
-------
Pro forma Funds from Operations................................ $27,465
=======
</TABLE>
(11) For the calculation of Cash Available for Distribution and Distributions
see "Distribution Policy."
(12) The Initial Hotels (excluding the LaGuardia Airport Marriott, which is
expected to be acquired after December 31, 1997) were acquired at various
times over the reporting period such that the number of hotels owned at
the end of each reporting period are as follows:
<TABLE>
<CAPTION>
NUMBER OF
PERIOD: HOTELS OWNED
------- ------------
<S> <C>
Year ended 1994................................................. 2
Year ended 1995................................................. 4
Year ended 1996................................................. 6
Year ended 1997................................................. 9
</TABLE>
The following table sets forth certain selected unaudited pro forma
operating data as if the aforementioned hotel acquisitions had been
consummated as of the beginning of each respective period. These amounts do
not include the LaGuardia Airport Marriott, which was not acquired by the
Company prior to December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Total revenues..................................... $79,461 $104,771 $140,353
Total depreciation................................. $ 8,420 $ 10,359 $ 14,766
Total interest..................................... $ 9,087 $ 12,728 $ 15,876
Total expenses..................................... $77,995 $102,848 $137,602
Net income......................................... $ 1,466 $ 1,923 $ 2,751
</TABLE>
(13) Partners' capital represents the interests of the Contributors and their
predecessors in the Initial Hotels.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company and the Operating Partnership are both newly organized entities
and neither has a prior operating history. Upon completion of the Offering and
the Formation Transactions, the Company will own an 82.6% interest in the
Initial Hotels through its interest in the Operating Partnership. The
Operating Partnership must lease the Initial Hotels to the Lessees in order to
qualify as a REIT, as neither the Company nor the Operating Partnership can
operate hotels under applicable regulations. The Lessees currently have not
entered into and will not enter into any leases of hotel properties except for
leases relating to hotels owned by the Company. The Operating Partnership's,
and therefore the Company's, principal sources of funds will be lease revenue
under the Participating Leases. Rent under the Participating Leases will be
based on the Initial Hotels' revenues, and the Lessee's ability to make
payments to the Operating Partnership under the Participating Leases will be
dependent on the Lessees' abilities to generate cash flow from the operation
of the Initial Hotels.
Occupancy, ADR, and REVPAR provide the best overview of the results of
operations. Occupancy is the quotient obtained by dividing the number of guest
rooms sold by the number of guest rooms available on an annual basis; ADR is
the quotient obtained by dividing aggregate guest room revenue by the number
of guest rooms sold on an annual basis; and REVPAR is the quotient obtained by
dividing aggregate guest room revenue by the total number of guest rooms
available on an annual basis. Increases in REVPAR caused by increases in
occupancy are accompanied by increases in most categories of variable
operating costs. Increases in REVPAR attributable to increases in ADR are
usually accompanied by increases in certain categories of operating costs such
as management fees, license fees, credit card processing fees and travel agent
commissions.
PRO FORMA RESULTS OF OPERATIONS FOR THE COMPANY
The following table sets forth key indicators for all of the Initial Hotels
as if all of the Initial Hotels had been leased pursuant to the Participating
Leases at January 1, 1995 and is useful in understanding the underlying
changes in the participating rent for the Company during periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Key Factors:
Occupancy.......................................... 71.6% 72.5% 72.9%
ADR................................................ $102.34 $108.14 $112.72
REVPAR............................................. $ 73.23 $ 78.37 $ 82.19
</TABLE>
For the year ended December 31, 1997, the Company had pro forma revenues of
$46.3 million from the Participating Leases that would have been in place at
the Initial Hotels. For the year ended December 31, 1996, the Company had pro
forma revenues of $44.0 million from the Participating Leases that would have
been in place at the Initial Hotels. This 5.2% increase of $2.3 million is
attributable to a 0.6% improvement in occupancy from 72.5% for the year ended
December 31, 1996 to 72.9% for the year ended December 31, 1997, and a 4.2%
improvement in ADR from $108.14 for the year ended December 31, 1996 to
$112.72 for the year ended December 31, 1997.
47
<PAGE>
RESULTS OF OPERATIONS OF THE INITIAL HOTELS (excluding LaGuardia Airport
Marriott)
The following table sets forth certain combined historical financial
information for the Initial Hotels (excluding LaGuardia Airport Marriott), as
a percentage of total revenues, for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
FINANCIAL DATA 1995 1996 1997
- -------------- ------- ------- --------
<S> <C> <C> <C>
Room revenue...................................... 63.3% 60.1% 63.0%
Food and beverage revenue......................... 28.2% 32.3% 29.3%
Other revenue..................................... 8.5% 7.6% 7.7%
------- ------- --------
Total revenue................................. 100.0% 100.0% 100.0%
Operating expenses:
Departmental and operating expenses............. 75.6% 68.0% 67.3%
Management fees................................. 2.8% 3.9% 4.6%
Property taxes.................................. 2.5% 3.8% 3.5%
Advisory fees................................... 1.4% 0.9% 0.9%
------- ------- --------
82.3% 76.6% 76.3%
------- ------- --------
Income before depreciation, amortization and
interest expense(1).............................. 17.7% 23.4% 23.7%
Depreciation.................................... 9.2% 10.4% 10.4%
Interest........................................ 9.6% 9.8% 10.9%
------- ------- --------
Net Income........................................ (1.1)% 3.2% 2.4%
======= ======= ========
CASH FLOW
- ---------
Net cash provided by operating activities......... $ 1,731 $ 6,949 $ 16,256
Net cash used in investing activities............. (48,957) (79,788) (107,204)
Net cash provided by financing activities......... 48,038 74,147 95,438
Key Factors(2)
Occupancy....................................... 61.1% 69.7% 71.7%
ADR............................................. $ 82.37 $ 87.93 $ 103.07
REVPAR.......................................... $ 50.35 $ 61.27 $ 73.91
</TABLE>
- --------
(1) The Company believes that income before interest, depreciation and
amortization is a measure of the ability of the Lessees' to make lease
payments to the Operating Partnership since it is unaffected by the debt
structure of the lessees. Industry analysts generally consider this to be
an appropriate measure of the performance of hotels. Therefore the Company
believes this indicator will (1) be used to monitor the performance of its
Lessees relative to their peer group and (2) contribute to its ability to
monitor profitability of its Lessees' operations including effective cost
management. However, this indicator should not be considered as an
alternative to net income as an indication of the Lessees' performance or
to cash flow as a measure of liquidity. Except with respect to Marriott,
the Operator Agreements are subordinate to the Leases and accordingly the
Operating Partnership is entitled to the payment of rent prior to the
payment of management fees.
(2) No assurance can be given that the trends reflected in this table will
continue or that occupancy, ADR and REVPAR will not decrease as a result
of changes in national or local economic or hotel industry conditions.
Comparison of the year ended December 31, 1997 with the year ended December
31, 1996.
Revenue increased from $48.2 million for the year ended December 31, 1996 to
$98.4 million for the year ended December 31, 1997, for a 104.2% increase of
$50.2 million. This increase was mostly attributable to the acquisitions of
certain Initial Hotels since December 31, 1996. The hotels acquired since
December 31, 1996 accounted for 49.6% of the revenue for the year ended
December 31, 1997. The revenue of the hotels owned for both years increased
7.3%.
REVPAR grew from $61.27 for the year ended December 31, 1996 to $73.91 for
the year ended December 31, 1997 for a 20.6% increase of $12.64. This increase
was mostly attributable to the strong REVPAR of the
48
<PAGE>
recently acquired hotels offset by the seasonality impact of the Marriott
Seaview Resort. Occupancy improved from 69.7% in 1996 to 71.7% in 1997,
representing a 2.9% increase. In addition, ADR increased from $87.93 in 1996
to $103.07 in 1997, a 17.2% increase. The occupancy growth was attributable to
the continuation of the increase in occupancy in the hotel industry in general
along with the strong operating results of the recently acquired hotels offset
by the seasonality impact of the Marriott Seaview Resort. Future occupancy can
be affected by many factors, such as the number of available rooms in a given
market and economic conditions, neither of which can be predicted by the
Company. The increase in ADR is attributed to the strong brand names of the
hotels acquired in the year ended December 31, 1997 and the fourth quarter of
1996 as well as a general increase for the entire hotel industry.
Departmental and operating expenses also grew by 102.0% between the periods.
This was caused primarily by the acquisition of certain hotels since December
31, 1996 and by the growth in occupancy, which was accompanied by increases in
most categories of variable expenses.
Income before depreciation, amortization and interest expense (also shown as
EBITDA) grew $12.1 million or 107.1%, from the year ended December 31, 1996 to
the year ended December 31, 1997. This growth was attributable to the positive
effect of the $50.2 million growth in revenues while expenses grew by $49.3
million, mostly due to the operating results of the hotels acquired since
December 31, 1996.
Depreciation expense increased $5.2 million or 103.1% for the year ended
December 31, 1997 from the year ended December 31, 1996. This increase was
attributable to the acquisitions completed since December 31, 1996.
Interest expense increased $6.0 million or 128.6% between the periods
primarily because of the acquisitions completed since December 31, 1996.
Net income increased 54.6% or $0.8 million for the year ended December 31,
1997 from the comparable period of 1996. Net income decreased as a percentage
of revenue from 3.2% to 2.4% between the years. This decrease is a direct
result of the higher debt service related to the hotels acquired since
December 31, 1996 offset by the increase in REVPAR.
Comparison of the year ended December 31, 1996 with the year ended December
31, 1995
Total revenues increased $31.7 million, or 193.3%, from 1995 to 1996. The
majority of this increase was attributable to the acquisitions completed in
1995. The revenues of the hotels acquired in 1995 were $28.7 million higher in
1996 than in 1995 as a result of their being included for a full year in 1996.
As can be seen by the growth in REVPAR, revenues as reported were also driven
by increases in the ADR at almost all of the hotels. This was attributable in
part to the general improvement in business and leisure travel. The
composition of revenue changed slightly to reflect an increase in food and
beverage revenues, from 28.2% of the total to 32.3%, reflecting the mix of
revenue for the hotels acquired in 1995.
Departmental and operating expenses grew by $20.3 million, or 163.7%,
between the years because of 1995 acquisitions being included for a full year
in 1996. These expenses declined as a percentage of revenues from 75.6% in
1995 to 68.0% in 1996, because of revenues growing at a faster pace than
expenses primarily related to the impact of the 1995 acquisitions. Real estate
and personal property taxes increased by $1.4 million or 352.0% from 1995 to
1996 because of the reasons noted above.
The resulting income before depreciation, amortization and interest expense
grew from $2.9 million in 1995 to $11.3 million in 1996 for an increase of
$8.4 million or 288.1%. This line item also grew from 17.7% of revenues in
1995 to 23.4% of revenues in 1996, which resulted from the 193.3% growth in
revenues while operating expenses grew by only 172.9%.
Depreciation expense increased $3.5 million between the years primarily as a
result of the 1995 acquisitions being included for a full year in 1996.
Interest expense increased $3.1 million between the years due to the
additional interest on the mortgage loans used to acquire the 1995 and 1996
acquisitions.
Net income increased $1.7 million to a positive $1.5 million between the
years. This increase relates to the strong operating results of the 1995 and
1996 acquisitions as well as stronger REVPAR of the hotels acquired in 1994.
49
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, will be its share of the Operating
Partnership's cash flow. The Operating Partnership's principal source of
revenue will be rent payments under the Participating Leases. Except for the
security deposits required under the Participating Leases, the Lessees'
obligations under the Participating Leases are unsecured and the Lessees'
abilities to make rent payments to the Operating Partnership under the
Participating Leases, and the Company's liquidity, including its ability to
make distributions to shareholders, will be dependent on the Lessees'
abilities to generate sufficient cash flow from the operation of the Initial
Hotels.
The Company intends to acquire and develop additional hotels and expand
certain of the Initial Hotels and will incur indebtedness to fund
acquisitions, developments and expansions. The Company may also incur
indebtedness to meet distribution requirements imposed on a REIT under the
Code to the extent that working capital and cash flow from the Company's
investments are insufficient to make the required distributions.
The Company has obtained a commitment for an unsecured $200 million Line of
Credit through the Banks, the borrowings from which will be utilized primarily
for the acquisition and renovation of additional hotels, the renovation and
expansion of certain of the Initial Hotels and for working capital
requirements. The Line of Credit will not be secured by the Initial Hotels or
any other assets of the Company. While the Line of Credit permits borrowings
of up to $200 million, the Company's aggregate advances under the Line of
Credit may not exceed an amount equal to 50% of the "Borrowing Base," which is
defined as the sum of the following: (i) for eligible properties which have
been owned for four quarters or more, the amount derived from a ten times
multiple of trailing 12-month EBITDA less a deduction for FF&E equal to 4% of
gross hotel revenues, unless a greater FF&E deduction is contractually
required, in which case the actual amount shall be used, plus (ii) for
properties owned for less than four quarters ("New Properties"), 100% of the
Company's purchase price plus 95% of any amounts in excess of annual reserves
used for renovations and expansions, provided that if the Company commences
renovations of such property within 180 days of its acquisition thereof and
completes such renovation within 18 months of its acquisition thereof
("Renovating Property"), such Renovating Property shall be treated as a New
Property until the end of the sixth fiscal quarter from the date of
acquisition for borrowing base calculation purposes. No more than 20% of the
Borrowing Base may be attributed to any one eligible property, and no more
than 20% of the Borrowing Base may be attributed to Renovating Properties or
joint venture properties.
Upon the completion of the Offering, the Company expects to have
approximately $159.7 million available under the Line of Credit after an
initial borrowing of approximately $40.3 million. Except for borrowings under
the Line of Credit, the Company and its subsidiaries may not incur any
additional unsecured debt in excess of $50 million in the aggregate. The Line
of Credit will have an initial term of three years. Borrowings under the Line
of Credit will bear interest at 30-day, 60-day or 90-day LIBOR, at the option
of the Company, from 1.40% to 1.75% above LIBOR depending on the leverage
ratio, plus a fee on the unutilized commitment ranging from 0.125% to 0.250%
per annum, payable quarterly in arrears. Economic conditions could result in
higher actual interest rates, which could increase debt service requirements
on borrowings under the Line of Credit and which could reduce the amount of
Cash Available for Distribution. The Company may also seek to increase the
amount of the Line of Credit, negotiate additional credit facilities or issue
debt instruments. Any debt incurred or issued by the Company may be secured or
unsecured, long-term, medium-term or short-term, bear interest at a fixed or
variable rate, and be subject to such other terms as the Board of Trustees
considers prudent.
The commitment for the Line of Credit provides for the following conditions
precedent to closing the Line of Credit: (i) the Company raises at least $220
million in net proceeds from the initial public offering of its Common Shares;
(ii) the Company must own at least 70% of the Operating Partnership; (iii) the
Company qualifies as a REIT; (iv) the Company has an initial Borrowing Base of
at least $250 million; and (v) satisfactory due diligence review of the
Initial Hotels by the Banks. The final terms of the Line of Credit are subject
to the definitive documentation to be negotiated by the Company and the Banks
prior to the completion of the Offering.
50
<PAGE>
The Company will acquire or develop additional hotels only as suitable
opportunities arise, and the Company will not undertake acquisition or
development of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from borrowings under the Line of Credit or
other borrowings or from the proceeds of additional issuance of Common Shares
or other securities. See "Business and Growth Strategies--Acquisition
Strategies."
The Company believes that it will have sufficient capital resources to
satisfy its obligations during the 12 month period following completion of the
Offering. Thereafter, the Company expects that capital needs will be met
through a combination of net cash provided by operations, additional
borrowings and additional equity issuances.
The Company will initially deposit approximately $9.9 million into the
capital expenditure reserves. The Company will also contribute to the capital
expenditures reserves on a continuing basis, from the rent paid under the
Participating Leases, amounts of the Lessees' revenues from operation of the
Initial Hotels. The Company intends to use the capital expenditure reserves
ranging from 4.0% to 5.5% for capital improvements to the Initial Hotels and
refurbishment and replacement of FF&E, but may make other uses of amounts in
the reserves that it considers appropriate from time to time. To the extent
such reserves are insufficient for capital expenditures, the Operating
Partnership, as lessor, will be obligated to fund the shortfall. Purchase
orders totaling over $2.0 million have been issued for the renovation of 317
guest rooms and purchase orders totaling $1.5 million have been issued for the
renovation of 240 guest rooms and 10 corridors at Le Meridien New Orleans and
13 corridors at Le Meridien Dallas. The Company anticipates making similar
arrangements with respect to future hotels that it may acquire or develop. Any
mortgages or other encumbrances on the Initial Hotels will be paid off with
the proceeds of the offering. See "Use of Proceeds."
Each Participating Lease requires comprehensive insurance to be maintained
on each of the Initial Hotels, including liability, fire and extended
coverage. The Company believes such specified insurance coverage is adequate.
INFLATION
The Company's revenues initially will be based on the Participating Leases,
which will result in changes in the Company's revenues based on changes in the
underlying Initial Hotels' revenues. Therefore, the Company initially will be
relying entirely on the performance of the Initial Hotels and the Lessees'
abilities to increase revenues to keep pace with inflation. Operators of
hotels in general, and the Lessees, can change room rates quickly, but
competitive pressures may limit the Lessees' abilities to raise rates faster
than inflation. The annual growth rate in ADR for the Initial Hotels for the
three years ended December 31, 1997 was approximately 4.9%, which was higher
than the rate of inflation as measured by the Consumer Price Index for such
period. However, according to industry statistics, industry-wide annual
increases in ADR failed to keep pace with inflation from 1987 to 1992.
The Company's variable expenses, which are subject to inflation, represent
approximately 14.2% of pro forma revenues. These variable expenses (real
estate and personal property taxes, property and casualty insurance and ground
rent) are expected to grow with the general rate of inflation.
SEASONALITY
The Initial Hotels' operations historically have been seasonal. Six of the
Initial Hotels maintain higher occupancy rates during the second and third
quarters. The Marriott Seaview Resort generates a large portion of its revenue
from golf related business and, as a result, revenues fluctuate according to
the season and the weather. Holiday Inn Beachside Resort, Radisson Tampa East
Hotel and Le Meridien New Orleans experience their highest occupancies in the
first quarter. This seasonality pattern can be expected to cause fluctuations
in the Company's quarterly lease revenue under the Participating Leases. The
Company will use cash flow from the Lessees' operations of the Initial Hotels
to make quarterly distributions of at least 95% of its net taxable income, on
a yearly basis, as recommended by the Board of Trustees. See "Distributions."
To the extent that cash flow from operations is insufficient during the year,
because of seasonal fluctuations in lease revenue or capital expenditures, the
Company expects to utilize other cash on hand or borrowings to fund the
distributions.
51
<PAGE>
THE HOTEL INDUSTRY
According to Smith Travel Research, the United States lodging industry is
currently experiencing a significant recovery from an extended downturn in the
late 1980's and early 1990's. The Company believes that this broad industry
recovery will continue and will contribute to the growth in total revenues and
REVPAR at the Initial Hotels (and hotels subsequently acquired by the Company)
which, through the Participating Leases, will result in increases in the
Company's Cash Available for Distribution.
While demand for hotel rooms in the U.S. increased in 12 out of the last 13
years, the poor performance of the hotel industry during the late 1980's and
early 1990's resulted from a dramatic increase in the supply of hotel rooms
that significantly outpaced the growth in room demand. According to Smith
Travel Research, this relationship reversed, with industry-wide room demand
exceeding growth in room supply each year between 1992 and 1996. As might be
expected in such a favorable supply/demand environment, hotel industry
occupancy and ADR rose, resulting in an increase from 62.6% and $59.27 in 1992
to 64.5% and $75.16 in 1997, respectively. Most recently, from 1996 to 1997,
industry-wide ADR and REVPAR increased by 6.1% and 5.3%, respectively. These
positive overall industry fundamentals followed increases in ADR and REVPAR of
6.7% and 6.5% for the year ended December 31, 1996 as compared to year end
1995.
Hotels located in urban and resort markets have outperformed the overall
lodging industry, as shown in the chart below, due to strong demand generated
by business and leisure travel to these markets, and limited new supply.
THE HOTEL INDUSTRY
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- ---------------
1995 1996 % CHANGE 1996 1997 % CHANGE
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Occupancy
U.S......................... 65.1% 65.0% (0.2)% 65.0% 64.5% (0.8)%
Urban....................... 68.5% 69.7% 1.8 % 69.7% 69.8% 0.1 %
Resort...................... 67.5% 69.1% 2.4 % 69.1% 69.7% 0.9 %
ADR
U.S......................... $ 66.39 $ 70.81 6.7 % $ 70.81 $ 75.16 6.1 %
Urban....................... $ 98.66 $106.56 8.0 % $106.56 $114.80 7.7 %
Resort...................... $102.79 $108.69 5.7 % $108.69 $114.85 5.7 %
REVPAR
U.S......................... $ 43.25 $ 46.06 6.5 % $ 46.06 $ 48.50 5.3 %
Urban....................... $ 67.55 $ 74.27 9.9 % $ 74.27 $ 80.14 7.9 %
Resort...................... $ 69.42 $ 75.13 8.2 % $ 75.13 $ 80.01 6.5 %
</TABLE>
- --------
(Source: Smith Travel Research)
In addition to leisure and business travel, national and regional
conventions have been an important generator of U.S. hotel room demand. The
conventions, expositions, meetings, and incentive travel industry accounts for
more than $80 billion in annual spending, making it the twenty-second largest
industry in the U.S. economy. According to Meeting and Conventions Magazine,
the number of attendees and total expenditures at conventions grew by more
than 50% from 1991 to 1995. Most top convention centers are generally located
in major metropolitan areas, with 23 of the top 30 largest convention centers
located in urban markets.
The Company expects the Initial Hotels to benefit from the continuing
improvement in performance of the convention, urban business and resort
markets as well as recent and planned renovations and improvements at a number
of the Initial Hotels. In addition, since the Company expects the greatest
continuing improvements in occupancy and room rates to occur in the upscale
and luxury full service segments of these markets, the Company intends to
focus its acquisition activities primarily on upscale and luxury full service
hotels.
52
<PAGE>
THE INITIAL HOTELS
The Initial Hotels consist of ten full service hotels containing an
aggregate of 3,379 guest rooms which target both business and leisure
travelers, including groups and those attending meetings and conventions, who
prefer a full range of high quality facilities, services and amenities. The
Initial Hotels include three luxury, six upscale and one mid-price full
service hotel located in three convention, two resort and five business
oriented markets in eight states. The Company's categorization of each of the
Initial Hotels as luxury, upscale or mid-price is based upon the corresponding
lodging industry segments as defined by Smith Travel Research which groups
hotels according to their market average daily rate or brand affiliation. Each
of the Initial Hotels (excluding LaGuardia Airport Marriott) was acquired by
the Contributors during the period 1994 through 1997. The Company expects to
acquire the LaGuardia Airport Marriott contemporaneously with the completion
of the Offering or shortly thereafter. The Company believes that each of the
Initial Hotels is adequately covered by insurance.
DESCRIPTIONS OF INITIAL HOTELS
Radisson Hotel South and Plaza Tower--Bloomington (Minneapolis), Minnesota
Radisson Hotel South and Plaza Tower is a 580 room upscale full service
convention hotel located at the intersection of Interstate 494 and Highway
100, approximately 15 minutes from the Minneapolis/St. Paul International
Airport, and five miles from the Mall of America. The property was acquired by
the Contributors in December 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Occupancy................................... 70.1% 71.5% 71.2%
ADR......................................... $ 81.28 $ 88.47 $ 91.93
REVPAR...................................... $ 57.01 $ 63.21 $ 65.48
Capital Expenditures........................ $1,911,000 $1,096,000 $1,736,000
Capital Expenditures (per room)............. $ 3,300 $ 1,900 $ 3,000
</TABLE>
For the year ended December 31, 1993, average occupancy, ADR and REVPAR at
the hotel were 68.5%, $70.07 and $48.00, respectively. For the year ended
December 31, 1994, average occupancy, ADR and REVPAR at the hotel were 69.2%,
$76.06 and $52.60, respectively.
The hotel is leased to and operated by affiliates of Radisson. Minneapolis-
based Radisson and its parent, Carlson Hospitality Worldwide, own, manage,
lease or franchise 475 lodging operations located in 49 countries, plus four
cruise ships.
Constructed in 1969, the Radisson Hotel South, containing 408 original
guestrooms, was the first hotel developed and built by Curtis L. Carlson,
after purchasing the original Radisson Hotel in Minneapolis. In 1980, the
Plaza Tower was constructed, adding 166 oversized guest rooms to the original
408 guest rooms. The hotel's meeting and convention facilities are the second
largest of any hotel in the state of Minnesota. Hotel amenities include five
food and beverage outlets, a business center, an indoor swimming pool, an
exercise room, and 1,320 surface parking spaces.
The highly successful Mall of America, located just five miles east of the
hotel, is visited by approximately 40 million people annually, stimulating
leisure business in the area and offering the hotel an attractive feature in
competing for group business. In addition, the Metropolitan Airports
Commission has announced an expansion of the Minneapolis-St. Paul
International Airport, which will result in the closing and razing of three
hotels and four other commercial properties. Construction is expected to
commence in 1998. The Company believes that the Minneapolis market in general,
and the Bloomington market specifically, will continue to be strong hotel
markets with favorable local area economic growth, and that the hotel is well-
positioned to continue to improve its position in the market and take
advantage of demand growth in the area.
Since January 1995, over $4.7 million in capital expenditures were made at
the hotel to renovate 166 guest rooms, complete the conversion of over 11,000
square feet of retail space to upscale meeting space, renovate one food and
beverage outlet and to enhance the main entrance. The Company expects the
hotel to benefit from approximately $1.1 million of improvements in 1998.
53
<PAGE>
The aggregate undepreciated tax basis of depreciable real property at
Radisson Hotel South and Plaza Tower for Federal income tax purposes was
approximately $11.4 million as of December 31, 1997. Depreciation and
amortization are computed on the straight-line method over 30 years.
The current real estate tax rate applicable to this Initial Hotel is $5.31
per $100 of assessed value. The total annual tax for Radisson Hotel South and
Plaza Tower at this rate for the current tax year is approximately $1.3
million.
Le Meridien New Orleans--New Orleans, Louisiana
Le Meridien New Orleans is a 494 room luxury full service convention
oriented hotel located in downtown New Orleans, a major convention city. The
hotel is centrally located across the street from the French Quarter and near
the central business district, the Ernest N. Morial Convention Center and the
New Orleans Superdome. The hotel has received the AAA Four Diamond award for
13 consecutive years. The hotel was acquired by the Contributors in November
1996. The hotel is subject to a 99-year ground lease, which expires in May
2081.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- ----------
<S> <C> <C> <C>
Occupancy........................................... 73.4% 74.3% 71.8%
ADR................................................. $122.81 $124.37 $ 132.46
REVPAR.............................................. $ 90.17 $ 92.38 $ 95.16
Capital Expenditures................................ $89,000 $ 0 $2,760,000
Capital Expenditures (per room)..................... $ 200 $ 0 $ 5,600
</TABLE>
For the year ended December 31, 1993, average occupancy, ADR and REVPAR at
the hotel were 68.5%, $109.46 and $74.98, respectively. For the year ended
December 31, 1994, average occupancy, ADR and REVPAR at the hotel were 74.3%,
$120.43 and $89.51, respectively.
The hotel is leased and managed by affiliates of Le Meridien Hotels &
Resorts ("Meridien"). Meridien operates 78 hotels in 46 countries and is the
brand name for the International Division of the Forte Group which is wholly
owned by Granada Group PLC. Currently, Le Meridien hotels in the United States
are located in Dallas, New York, Boston and New Orleans.
Originally constructed in 1984, the 30-story hotel contains 11,715 square
feet of meeting and conference space, a restaurant and lounge. Additional
amenities include a business center, 3,000 square foot health club, outdoor
swimming pool, state-of-the-art telephone system including voicemail and modem
access and 174 enclosed parking spaces.
The Company believes that the hotel's location near the city's largest
convention facility and its access to the French Quarter should provide
continuing sources of demand. According to the City of New Orleans, the number
of meetings has grown from 1,454 in 1990 to 3,108 in 1996, an annual increase
of 13.5%. During the same period, the number of convention delegates increased
from 1,129,034 to 1,370,700, a 21.4% increase. The convention center is in the
process of being expanded, with an additional 400,000 square feet of
meeting/exhibit space expected to be completed in 1999.
In 1997, the hotel began an extensive three-year $6.4 million renovation
consisting of capital improvements throughout the property. Approximately $3.4
million was committed in 1997 to completely renovate 151 guest rooms and five
executive suites. Additionally, improvements to function space, the lobby
area, Le Jazz lounge, and repainting the building exterior were undertaken.
Significant technological enhancements in 1997 included a new telephone switch
and voicemail, front and back office computer systems, and an electronic fire
panel. In 1998, approximately $2.0 million is anticipated to be committed to
renovate an additional 240 guest rooms, including new case goods and soft
goods, upgrade the garage fire life safety system, and computerize the sales
and marketing department. In 1999, it is anticipated that $1.0 million will be
committed to capital improvements, which is expected to include the renovation
of the remaining 96 guest rooms.
54
<PAGE>
The aggregate undepreciated tax basis of depreciable real property at Le
Meridien New Orleans for Federal income tax purposes was approximately $42.1
million as of December 31, 1997. Depreciation and amortization are computed on
the straight-line method over 39 years.
The current real estate tax rate applicable to this Initial Hotel is $165.04
per $1,000 of assessed value. The total annual tax for Le Meridien New Orleans
at this rate for the current tax year is approximately $0.8 million.
LaGuardia Airport Marriott--New York, New York
LaGuardia Airport Marriott is a 436 room upscale full service hotel located
directly across from New York's LaGuardia Airport. The hotel is five minutes
from Shea Stadium, home of the New York Mets, and the USTA National Tennis
Center, home of the U.S. Open, and 20 minutes from Manhattan. The hotel's
strategic location also provides convenient access to John F. Kennedy
International Airport, Long Island, Westchester, Connecticut and New York's
public transportation network. The hotel is expected to be acquired by the
Company concurrently with the Offering or shortly thereafter.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- --------
<S> <C> <C> <C>
Occupancy..................................... 83.3% 82.4% 80.1%
ADR........................................... $ 119.09 $ 132.63 $ 137.99
REVPAR........................................ $ 99.18 $ 109.31 $ 110.53
Capital Expenditures.......................... $1,816,000 $2,602,000 $808,000
Capital Expenditures (per room)............... $ 4,200 $ 6,000 $ 1,900
</TABLE>
For the year ended December 31, 1993, average occupancy, ADR and REVPAR were
86.3%, $101.31 and $87.43, respectively. For the year ended December 31, 1994,
average occupancy, ADR and REVPAR at the hotel were 86.9%, $109.88 and $95.53,
respectively.
The hotel is leased to the Affiliated Lessee and managed by Marriott
pursuant to a long-term incentive based operating agreement. Marriott is one
of the world's leading hospitality companies, with over 4,600 operating units
in the United States and 53 other countries and territories.
Originally constructed in 1981, the 10-story hotel contains 436 guest rooms,
including two concierge floors, and J.W.'s Steakhouse, a full service 130-seat
restaurant and The Empire Lounge, a 67-seat casual bar serving both food and
beverages. The hotel provides approximately 15,750 square feet of flexible
meeting space, including a 4,770 square foot ballroom. Additional guest
amenities include a full service fitness center with indoor heated pool,
whirlpool and sauna, free airport shuttle service, valet service and surface
and covered parking totalling 427 spaces.
The hotel was most recently renovated in 1996 when it underwent an extensive
$2.6 million renovation, which encompassed guest room soft goods and
bathrooms, corridors, conference, banquet and restaurant facilities, lobby
areas and new windows throughout the hotel. Total capital expenditures made
between 1995 and 1997, including this renovation, totalled $5.2 million.
The aggregate undepreciated tax basis of depreciable real property at
LaGuardia Airport Marriott for Federal income tax purposes was approximately
$27.3 million as of December 31, 1997. Depreciation and amortization are
computed on the straight-line method over 39 years.
The current real estate tax rate applicable to the hotel is approximately
$10.11 per $100 of assessed value. The total annual tax for LaGuardia Airport
Marriott at this rate for the current tax year is approximately $1.4 million.
Le Meridien Dallas--Dallas, Texas
Le Meridien Dallas is a 396 room upscale full service hotel located in
downtown Dallas, approximately 25 minutes from Dallas/Fort Worth International
Airport, in the heart of the city's arts and financial districts. The
55
<PAGE>
hotel is conveniently located near the City Convention Center, four stops away
on the new Dallas light rail system, with a DART station adjacent to the
hotel. The hotel was acquired by the Contributors in September 1997 and has
received the AAA Three Diamond award.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
------ -------- --------
<S> <C> <C> <C>
Occupancy......................................... 62.4% 65.0% 69.1%
ADR............................................... $92.90 $ 101.19 $ 107.97
REVPAR............................................ $57.97 $ 65.79 $ 74.64
Capital Expenditures.............................. $ N/A(1) $294,000 $523,000
Capital Expenditures (per room)................... $ N/A(1) $ 700 $ 1,300
</TABLE>
- --------
(1) Information is not available for periods prior to acquisition by the
Contributors.
The hotel is leased and managed by affiliates of Meridien.
The hotel was constructed in 1980 as part of the Plaza of the Americas
complex, a mixed use development which includes approximately 1.2 million
square feet of office space, retail shops, restaurants, fast food outlets, a
health and fitness club and an indoor skating rink. The hotel is a 16-story
building with two additional floors under street level and includes a
restaurant and bar. The hotel contains 23,215 square feet of meeting space,
including an 8,600 square foot ballroom, and has access to 175 parking spaces
located in a contiguous structured parking facility. In 1989, the owner
converted the Plaza of the Americas to condominium ownership, pursuant to
Texas law, by filing a Declaration of Covenants, Conditions and Restrictions
for Plaza of the Americas (the "Condominium Declaration"). The condominium
consists of five commercial units including the hotel unit, the north tower
unit, the south tower unit, the retail unit and the parking garage unit (each,
a "Condominium Unit"). The Condominium Declaration allows for individual
ownership of each Condominium Unit with ownership of the balance of the
property as tenants-in-common. The Condominium Declaration establishes an
association (the "Association"), consisting of the Condominium Unit owners,
for the operation and maintenance of the common elements and the overall
governance of the Plaza of the Americas.
Dallas is the ninth largest city in the United States by population and
among the largest hubs for corporate headquarters and high tech companies in
the country. During the period from 1992 to 1996, Dallas registered 6.7%
annual growth in the number of convention visitors. The city has recently
authorized a study to review a possible expansion of the convention center. As
a result of both the economic growth of the region and the growth in the
convention business, the downtown Dallas lodging market has experienced a
significant increase in room demand. The 505 room Adam's Mark Hotel, located
next door to the Le Meridien Dallas, is currently undergoing a renovation
which will increase the size of the hotel by approximately 1,200 guestrooms,
and add over 200,000 square feet of new convention facilities. The expansion
is expected to be completed between the fall of 1998 and the spring of 1999.
Although no assurance can be made, the Company believes that Le Meridien
Dallas Hotel will continue to experience favorable operations during the
foreseeable future, notwithstanding the expansion of the nearby hotel.
Since acquisition of the hotel in September 1997, over $500,000 has been
committed to convert 11 two bedroom suites to 22 guest rooms, computerize the
sales office, add an exercise room and upgrade the physical plant. During
1998, the Company expects to spend approximately $2.7 million to renovate the
remaining 317 guest rooms and suites, including new case goods and soft goods.
Omaha Marriott Hotel--Omaha, Nebraska
Omaha Marriott Hotel is a 301 room upscale full service commercial hotel
located in the western suburbs of Omaha at one of the city's busiest
intersections (I-680 and West Dodge Road). The hotel is located in the Regency
Office Park, a mixed use development containing over 865,000 square feet of
office and retail space, and directly across West Dodge Road from Westroads
Shopping Center, the largest shopping mall in Omaha. The hotel was acquired by
the Contributors in December 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------ -------- ----------
<S> <C> <C> <C>
Occupancy....................................... 80.0% 77.3% 77.7%
ADR............................................. $94.40 $ 96.79 $ 103.67
REVPAR.......................................... $75.51 $ 74.80 $ 80.61
Capital Expenditures............................ $ N/A(1) $798,000 $1,277,000
Capital Expenditures (per room)................. $ N/A(1) $ 2,700 $ 4,200
</TABLE>
- --------
(1) Information is not available for periods prior to acquisition by the
Contributors.
56
<PAGE>
For the year ended December 31, 1993, average occupancy, ADR and REVPAR were
76.2%, $82.56 and $62.91, respectively. For the year ended December 31, 1994,
average occupancy, ADR and REVPAR were 76.2%, $87.21 and $66.41, respectively.
The hotel is leased to the Affiliated Lessee and managed by Marriott
pursuant to a long-term incentive-based operating agreement.
Originally constructed in 1982, the hotel contains two restaurants, a
lounge, gift shop, exercise facility, heated indoor/outdoor swimming pool,
8,916 square feet of meeting and banquet space, and over 500 surface parking
spaces. The hotel is one of only two AAA Four Diamond hotels in Omaha.
The western suburbs of Omaha have demonstrated significant and steady growth
throughout the past decade, a trend that continues today. Major commercial
expansion is underway within close proximity of the Omaha Marriott Hotel,
including a 290,000 square foot technology center under construction for First
Data Resources at the former Ak-sar-ben Racetrack site and the First National
Business Park near Boystown which will total approximately 1.3 million square
feet of Class A office space when completed.
In February 1997, a major renovation of the ballroom and meeting areas was
completed. In November 1997, the 120-seat casual restaurant was renovated and
converted to Marriott's Allies American Grille. A renovation of the lobby is
expected to be completed by April 15, 1998.
The hotel is situated on approximately 9.0 acres which will allow for a
potential expansion of the hotel. The Company intends to complete plans for an
expansion providing for an additional 100 guest rooms in a new six-story
building, including a new concierge level, business center, expanded health
club facilities and a new 9,800 square foot ballroom, divisible into eight
meeting rooms. Subject to final pricing, the Company intends to move forward
in the next 12 months with the construction of the expansion, currently
budgeted at approximately $15.0 million.
The aggregate undepreciated tax basis of depreciable real property at the
Omaha Marriott Hotel for Federal income tax purposes was approximately $19.5
million as of December 31, 1997. Depreciation and amortization are computed on
the straight-line method over 39 years.
The current real estate tax rate applicable to the hotel is approximately
$2.40 per $100 of assessed value. The total annual tax for the Omaha Marriott
Hotel at this rate for the current tax year is approximately $0.4 million.
Marriott Seaview Resort--Galloway Township (Atlantic City), New Jersey
Marriott Seaview Resort is a 300 room luxury golf and conference resort
located on Brigantine Bay, approximately nine miles north of Atlantic City,
New Jersey. The resort was acquired by the Contributors in November 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- -------- ----------
<S> <C> <C> <C>
Occupancy..................................... 66.4% 67.5% 67.6%
ADR........................................... $ 141.21 $ 146.71 $ 151.91
REVPAR........................................ $ 93.73 $ 99.06 $ 102.63
Capital Expenditures.......................... $2,285,000 $730,000 $1,399,000
Capital Expenditures (per room)............... $ 7,600 $ 2,400 $ 4,700
</TABLE>
For the year ended December 31, 1993, average occupancy, ADR and REVPAR were
64.4%, $131.79 and $84.87, respectively. For the year ended December 31, 1994,
average occupancy, ADR and REVPAR were 69.0%, $131.61 and $90.86,
respectively.
The hotel is leased to the Affiliated Lessee and managed by Marriott
pursuant to a long-term incentive-based Operator Agreement.
57
<PAGE>
The hotel opened as a prestigious private country club in 1912 and was
expanded in 1960 and again in 1986. The resort includes 300 guest rooms and
suites, two 18 hole championship golf courses, an extensive golf learning
center and practice facilities, driving range, golf pro shop, a 275-seat fine
dining restaurant, 55-seat grill room, 30-seat lobby lounge, indoor and
outdoor swimming pools, an exercise facility, eight tennis courts and 750
surface parking spaces.
For a five year period beginning in 1998, the hotel will host the LPGA Shop
Rite Classic on the hotel's historic Bay Course, one of the few classic links
style courses designed by renowned Scottish designer Donald Ross. In addition,
Marriott Ownership Resorts International has plans to develop a 270-unit
timeshare community on a 40 acre site adjacent to one of the golf courses and
close to the main hotel buildings. The project, which will include an 18,000
square foot full service health club and spa facility which will be available
as an additional amenity to hotel guests, is expected to provide a new source
of income to the hotel. The Company believes that the hotel will also benefit
from significant new public investments in the Atlantic City area, including
the newly opened $268 million Atlantic City Convention Center, road
improvements, infrastructure improvements to the Atlantic City International
Airport, and the proposed expansion and addition of nine hotel casinos in
Atlantic City.
During the period 1995 through 1997, $4.4 million was invested in capital
improvements and upgrades, including renovations of the guest rooms and
several golf course improvements. The Company anticipates expending
approximately $8.0 million for additional capital improvements in 1998 and
1999. These improvements will include an extensive renovation of the historic
Bay Course, which are intended to restore it to its original design.
Renovations of the lobby lounge and ballroom/meeting areas were completed in
the first quarter of 1998. In order to restore the resort to its turn-of-the-
century charm and country club elegance, guest rooms and public areas will
undergo renovation commencing in late 1998. Additionally, the Company plans to
explore possible expansions to the ballroom and meeting areas as well as
improvements to resort oriented amenities and services.
The aggregate undepreciated tax basis of depreciable real property at
Marriott Seaview Resort for Federal income tax purposes was approximately
$27.5 million as of December 31, 1997. Depreciation and amortization are
computed on the straight-line method over 30 years.
The current real estate tax rate applicable to the hotel is approximately
$2.64 per $100 of assessed value. The total annual tax for Marriott Seaview
Resort at this rate for the current tax year is approximately $.8 million.
Radisson Tampa East Hotel--Tampa, Florida
Prior to or upon completion of the Offering, the Camberley Plaza Sabal Park
Hotel will be converted to a Radisson and leased to, and operated by Radisson.
The hotel, which will be renamed the Radisson Tampa East Hotel, is a 265 room
upscale full service hotel located in east suburban Tampa, Florida. The hotel
is situated at the entrance to Sabal Business Park, a three million square
foot office complex. There are approximately 250 companies in the park, with
over 5,000 employees. Major tenants include GTE Data Services, Intermedia
Communications Inc., Nationsbank, Coca-Cola, Time Inc., Pharmacy Corp. of
America, National Insurance Services, National Rx Services, Progressive
Insurance, PMSI, Warner Publishing Services and the State of Florida. In
addition, Citibank is currently developing the first phase of a 450,000 square
foot customer service center adjacent to the hotel. The hotel is near Busch
Gardens and Houlihan's Stadium, 50 minutes from Walt Disney World in Orlando,
and a 35 minute drive from Tampa International Airport. The hotel was
purchased by the Contributors in June 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Occupancy......................................... 73.1% 77.5% 76.1%
ADR............................................... $ 85.13 $ 84.85 $ 89.25
REVPAR............................................ $ 62.24 $ 65.76 $ 67.87
Capital Expenditures.............................. $260,000 $761,000 $324,000
Capital Expenditures (per room)................... $ 1,000 $ 2,900 $ 1,200
</TABLE>
58
<PAGE>
Originally constructed in 1986 and operated as a Camberley Plaza Hotel since
1995, the hotel offers extensive amenities, including 23,000 square feet of
meeting space in 21 rooms, a restaurant and lobby lounge, heated outdoor
swimming pool, lighted tennis court, business center, fitness center, retail
shops and 442 surface parking spaces. During the period from 1995 through
1997, the hotel underwent approximately $1.3 million in renovations. The hotel
also includes undeveloped land that may be available for a possible room
expansion. In addition, the opportunity exists to convert four two-bedroom
suites into eight guest rooms, thereby increasing the room count by four
units. The hotel, a AAA Three Diamond facility, is the only upscale full
service hotel in east suburban Tampa.
The Company believes the diversified Tampa economy will continue to be one
of the top growth markets in the United States, with job growth expected to
exceed the national average. REVPAR in the Tampa market has exhibited solid
growth, increasing an average of 6.3% annually from 1993 through 1996. With no
full service hotels currently under construction in the area, the Company
expects this growth trend to continue.
Holiday Inn Beachside Resort and Conference Center--Key West, Florida
Holiday Inn Beachside Resort and Conference Center is an upscale full
service resort comprised of several one, two and three-story buildings
containing 222 guest rooms, including 29 suites, located on an approximately
7.8 acre parcel north of U.S. 1 on the beach facing the Gulf of Mexico. The
resort is located on the island of Key West, considered to have the most
consistent weather in Florida, and benefits from the island's reputation as a
popular tourist destination. The hotel was acquired by the Contributors in
July 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- ---------- --------
<S> <C> <C> <C>
Occupancy....................................... 74.7% 72.0% 76.5%
ADR............................................. $ 98.40 $ 108.27 $ 105.24
REVPAR.......................................... $ 73.54 $ 78.00 $ 80.46
Capital Expenditures............................ $350,000 $1,167,000 $591,000
Capital Expenditures (per room)................. $ 1,600 $ 5,300 $ 2,700
</TABLE>
The hotel is leased and managed by an affiliate of Durbin. Durbin was
founded by James E. Durbin in 1985 after retiring as President of Marriott
Hotels & Resorts. James E. Durbin, together with J.W. Marriott, Sr. and J.W.
Marriott, Jr., directed the expansion of Marriott hotels from four properties
in 1964 to more than 130 properties upon his retirement in 1984. Durbin
Companies, Inc. presently owns and/or operates ten first class hotels.
Originally constructed in three phases between 1960 and 1989, the hotel
contains Key West's largest conference facilities, consisting of 6,220 square
feet of meeting space, including a 5,250 square foot ballroom. The hotel
includes a full service restaurant, 50-seat poolside lounge, two tennis
courts, outdoor swimming pool and jacuzzi, 90 foot sunset pier stretching into
the Gulf of Mexico, a concession offering sail boats, jet skis and other water
sports equipment for guest rental and 230 surface parking spaces.
The hotel completed an extensive refurbishment program in November 1996,
which included painting the exterior of the building, enhancing the roof line,
resurfacing the pool deck, adding new signage, supplying new case goods in all
29 suites, extensive landscaping and renovating the food and beverage outlets,
meeting space and lobby. In December 1997, the remaining 193 guest rooms
received new case goods and soft goods.
The Company believes there are significant barriers to the development of
new hotels in Key West, including extensive environmental and entitlement
hurdles, limited land availability and the high cost of development in Key
West.
Holiday Inn Plaza Park--Visalia, California
Holiday Inn Plaza Park is a 257 room mid-price full service hotel located at
the junction of Highways 99 and 198 in Visalia, California. The hotel is
situated in the heart of central California, a major agri-business center and
is also a popular tourist destination due to its central location and
proximity to Yosemite, Sequoia and Kings Canyon National Parks. In addition,
the hotel is utilized extensively by major corporate groups and social users
due to the size and flexibility of its meeting space and ample parking.
59
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
---------- -------- --------
<S> <C> <C> <C>
Occupancy:...................................... 54.8% 58.5% 62.5%
ADR:............................................ $ 63.49 $ 62.06 $ 61.12
REVPAR:......................................... $ 34.82 $ 36.28 $ 38.18
Capital Expenditures............................ $1,303,000 $156,000 $402,000
Capital Expenditures (per room)................. $ 5,000 $ 600 $ 1,600
</TABLE>
The hotel was acquired by the Contributors in October 1994. The hotel is
leased and operated by OLS.
The hotel was constructed in 1976 and a second wing containing additional
guest rooms and a conference center was built in 1978. The hotel contains
approximately 17,000 square feet of meeting space, divisible into 11 rooms
with two ballrooms. Additional amenities include a restaurant, nightclub,
fitness center and both indoor and outdoor heated swimming pools.
Since being acquired by the Contributors, the property has undergone a
comprehensive renovation to the building exterior, guest rooms and public
spaces. The renovations included new soft goods and case goods, public area
and meeting room upgrades, repositioning of the restaurant and lounge,
technological improvements, exterior painting, landscaping and the addition of
a porte cochere.
Le Montrose All Suite Hotel De Gran Luxe--West Hollywood, California
Le Montrose All Suite Hotel De Gran Luxe is a 128 suite, five-story, luxury
full service hotel located in West Hollywood, California, two blocks east of
Beverly Hills and one block south of the "Sunset Strip." The hotel is within
walking distance of many of the area's finest restaurants, retail shops and
night clubs. The hotel attracts short and long-term guests and small groups
primarily from the recording, film and design industries. The hotel was
acquired by the Contributors in November 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Occupancy:........................................ 77.1% 77.8% 81.5%
ADR:.............................................. $ 114.91 $ 124.22 $ 137.11
REVPAR:........................................... $ 88.60 $ 96.65 $ 111.76
Capital Expenditures.............................. $551,000 $508,000 $627,000
Capital Expenditures (per room)................... $ 4,300 $ 4,000 $ 4,900
</TABLE>
The hotel is operated and leased by OLS which was founded in 1988 and
currently manages over 25 hotel properties.
The property was originally constructed as an apartment building in 1976 and
converted into a luxury suite hotel in 1989. Each hotel suite features a
sunken living room, fireplace, multiline telephone with private voicemail and
data ports, fax machine, color television with built-in VCR, and individual
stereo and CD systems. Eighty-five suites feature kitchenettes and most suites
have private balconies. The hotel features a rooftop swimming facility with
private cabanas, poolside phones and a heated spa. Additional amenities
include a rooftop lighted tennis court, fitness center, full service
restaurant and an 875 square foot meeting room. The hotel offers valet parking
in a two-level underground parking structure with a capacity for 130 cars.
During the past three years, the hotel has undergone major renovations
totaling approximately $1.7 million, including a complete upgrade of 109 of
the suites, corridors, public areas, restaurant and pool area. A new property
management system was installed in 1995 and all suites received new
televisions. The remaining 19 suites, along with four suites not previously
available as hotel suites, are scheduled to be renovated in 1998.
The Company believes there are significant barriers to entry due to the lack
of developable sites, the cost of new construction and the lengthy entitlement
process in West Hollywood.
60
<PAGE>
The following table contains information regarding average occupancy, ADR
and REVPAR at the Initial Hotels in the years ended December 31, 1994, 1995,
1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- -------------------------- --------------------------
INITIAL HOTEL 1994 1995 % CHANGE 1995 1996 % CHANGE 1996 1997 % CHANGE
------------- ------- ------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONVENTION ORIENTED:
Radisson Hotel South and
Plaza Tower
Bloomington, MN
Average occupancy...... 69.2% 70.1% 1.3 % 70.1% 71.5% 2.0 % 71.5% 71.2% (0.3)%
ADR.................... $ 76.06 $ 81.28 6.9 % $ 81.28 $ 88.47 8.8 % $ 88.47 $ 91.93 3.9 %
REVPAR................. $ 52.60 $ 57.01 8.4 % $ 57.01 $ 63.21 10.9 % $ 63.21 $ 65.48 3.6 %
Le Meridien New Orleans
New Orleans, LA
Average occupancy...... 74.3% 73.4% (1.2)% 73.4% 74.3% 1.2 % 74.3% 71.8% (3.4)%
ADR.................... $120.43 $122.81 2.0 % $122.81 $124.37 1.3 % $124.37 $132.46 6.5 %
REVPAR................. $ 89.51 $ 90.17 0.7 % $ 90.17 $ 92.38 2.5 % $ 92.38 $ 95.16 3.0 %
Le Meridien Dallas
Dallas, TX
Average occupancy...... 56.5% 62.4% 10.4 % 62.4% 65.0% 4.2 % 65.0% 69.1% 6.3 %
ADR.................... $ 92.53 $ 92.90 0.4 % $ 92.90 $101.19 8.9 % $101.19 $107.97 6.7 %
REVPAR................. $ 52.26 $ 57.97 10.9 % $ 57.97 $ 65.79 13.5 % $ 65.79 $ 74.64 13.5 %
RESORT ORIENTED:
Marriott Seaview Resort
Galloway Township, NJ
Average occupancy...... 69.0% 66.4% (3.8)% 66.4% 67.5% 1.7 % 67.5% 67.6% 0.1 %
ADR.................... $131.61 $141.21 7.3 % $141.21 $146.71 3.9 % $146.71 $151.91 3.5 %
REVPAR................. $ 90.86 $ 93.73 3.2 % $ 93.73 $ 99.06 5.7 % $ 99.06 $102.63 3.6 %
Holiday Inn Beachside
Resort Key West, FL
Average occupancy...... 77.0% 74.7% (2.9)% 74.7% 72.0% (3.6)% 72.0% 76.5% 6.3 %
ADR.................... $ 95.96 $ 98.40 2.5 % $ 98.40 $108.27 10.0 % $108.27 $105.24 (2.8)%
REVPAR................. $ 73.85 $ 73.54 (0.4)% $ 73.54 $ 78.00 6.1 % $ 78.00 $ 80.46 3.2 %
BUSINESS ORIENTED:
LaGuardia Airport
Marriott New York, NY
Average Occupancy...... 86.9% 83.3% (4.1)% 83.3% 82.4% (1.1)% 82.4% 80.1% (2.8)%
ADR.................... $109.88 $119.09 8.4 % $119.09 $132.63 11.4 % $132.63 $137.99 4.0 %
REVPAR................. $ 95.53 $ 99.18 3.8 % $ 99.18 $109.31 10.2 % $109.31 $110.53 1.1 %
Omaha Marriott Hotel
Omaha, NE
Average occupancy...... 76.2% 80.0% 5.0 % 80.0% 77.3% (3.4)% 77.3% 77.7% 0.5 %
ADR.................... $ 87.21 $ 94.40 8.2 % $ 94.40 $ 96.79 2.5 % $ 96.79 $103.67 7.1 %
REVPAR................. $ 66.41 $ 75.51 13.7 % $ 75.51 $ 74.80 (0.9)% $ 74.80 $ 80.61 7.8 %
Radisson Tampa East
Hotel
Tampa, FL
Average occupancy...... 74.2% 73.1% (1.5)% 73.1% 77.5% 6.0 % 77.5% 76.1% (1.8)%
ADR.................... $ 81.51 $ 85.13 4.4 % $ 85.13 $ 84.85 (0.3)% $ 84.85 $ 89.25 (5.2)%
REVPAR................. $ 60.47 $ 62.24 2.9 % $ 62.24 $ 65.76 5.7 % $ 65.76 $ 67.87 3.2 %
Holiday Inn Plaza Park
Visalia, CA
Average occupancy...... 58.8% 54.8% (6.8)% 54.8% 58.5% 6.8 % 58.5% 62.5% 6.8 %
ADR.................... $ 63.82 $ 63.49 (0.5)% $ 63.49 $ 62.06 (2.3)% $ 62.06 $ 61.12 (1.5)%
REVPAR................. $ 37.56 $ 34.82 (7.3)% $ 34.82 $ 36.28 4.2 % $ 36.28 $ 38.18 5.2 %
Le Montrose All Suite
Hotel
De Gran Luxe
West Hollywood, CA
Average occupancy...... 81.3% 77.1% (5.2)% 77.1% 77.8% 0.9 % 77.8% 81.5% 4.8 %
ADR.................... $103.76 $114.91 10.7 % $114.91 $124.22 8.1 % $124.22 $137.11 10.4 %
REVPAR................. $ 84.38 $ 88.60 5.0 % $ 88.60 $ 96.65 9.1 % $ 96.65 $111.76 15.6 %
WEIGHTED AVERAGE FOR THE
PORTFOLIO:
Average occupancy...... 71.9% 71.6% (0.4)% 71.6% 72.5% 1.3 % 72.5% 72.9% 0.6 %
ADR.................... $ 97.56 $102.34 4.9 % $102.34 $108.14 5.7 % $108.14 $112.72 4.2 %
REVPAR................. $ 70.11 $ 73.23 4.5 % $ 73.23 $ 78.37 7.0 % $ 78.37 $ 82.19 4.9 %
</TABLE>
61
<PAGE>
THE PARTICIPATING LEASES
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership may operate hotels or related properties. The Operating
Partnership will generally lease the Initial Hotels to the Lessees for terms
of between six and 11 years pursuant to separate Participating Leases that
provide for rent equal to the greater of base rent ("Base Rent") or
participating rent ("Participating Rent") and which will set forth the
Lessees' required capitalization and certain other matters. Unless otherwise
noted, each Participating Lease contains the provisions described below. The
following summary is qualified by the Participating Leases, a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Participating Lease Terms. The Participating Leases will have an average
term of approximately 9.9 years, with expiration dates staggered between the
years 2004 and 2009, subject to earlier termination upon the occurrence of
certain contingencies described in the Participating Leases (including,
particularly, the provisions described herein under "Damage to Initial
Hotels," "Condemnation of Initial Hotels," "Termination of Participating
Leases for Failure to Meet Performance Goals" and "Termination of
Participating Leases upon Disposition of Initial Hotels"). The variation of
the lease terms is intended to provide the Company protection from the risk
inherent in simultaneous lease expirations and to align the expiration of
certain of the Participating Leases with the expiration of the applicable
franchise license.
Base Rent; Participating Rent; Additional Charges. Each Participating Lease
requires the applicable Lessee to pay (x) the greater of (i) Base Rent in a
fixed amount (ii) Participating Rent based on certain percentages of room
revenue, food and beverage revenue and telephone and other revenue at the
applicable Initial Hotel, and (y) certain other amounts, including utility
charges, certain impositions and insurance premiums, and interest accrued on
any late payments or charges ("Additional Charges"). For each lease year
beginning with the lease year commencing in January 1999, or January 2000, as
applicable, the Base Rent and Participating Rent thresholds will be increased
to reflect any increase in the applicable CPI (as defined in the Glossary).
Lessees are required to pay Base Rent monthly in arrears by the first day of
each calendar month, and Participating Rent is payable quarterly in arrears by
the twentieth day or, with respect to the Initial Hotels operated by Marriott,
the twenty-fifth day, of each fiscal quarter. Participating Rent is calculated
based on the year-to-date departmental receipts as of the end of the preceding
fiscal quarter, plus the prorated amount of each of the applicable
departmental thresholds for the fiscal quarter, or portion thereof, minus the
cumulative Participating Rent previously paid for such fiscal year and the
cumulative Base Rent paid for such fiscal year as of the end of the preceding
fiscal quarter. A final adjustment of the Participating Rent for each fiscal
year will be made based on audited statements of revenue for each Initial
Hotel.
Other than real estate and personal property taxes, casualty insurance
including loss of income insurance, ground lease payments, capital impositions
and capital replacements and refurbishments (determined in accordance with
GAAP), which are obligations of the Company, the Participating Leases require
the Lessees to pay rent, condominium dues, certain insurance, all costs and
expenses, and all utility and other charges incurred in the operation of the
Initial Hotels. The Participating Leases also provide for rent reductions and
abatements in the event of damage or destruction or a partial taking of any
Initial Hotel as described under "Damage to Initial Hotels" and "Condemnation
of Initial Hotels."
Lessee Capitalization. Each Lessee (except the Affiliated Lessee) will be
required to maintain a required minimum net worth (the "Required Minimum Net
Worth"), which, for the First Lease Year must be equal to 25% of the annual
rent the applicable Lessee would have paid for the prior fiscal year had the
applicable Participating Lease been in effect for all hotels, and, thereafter
must be equal to or greater than 25% of the prior fiscal year's lease payments
for all hotels, determined annually, including the Initial Hotels, leased by
the Company to that Lessee. Each Lessee will also be required to maintain
adequate working capital for the term of the Participating Lease. Required
Minimum Net Worth may be satisfied by the appropriate value in Units or Common
Shares. Each Lessee (except the Affiliated Lessees) will not be permitted to
make payments or distributions of any kind (other than Base Rent,
Participating Rent and Additional Charges payable to the Company, hotel
operating expenses, other payments and management fees) unless its tangible
net worth is equal to or greater than 25% of the prior fiscal year's actual
lease payments for hotels leased to the Lessee during all
62
<PAGE>
of such period. Except with respect to Radisson Hotel South and Plaza Tower,
failure by a Lessee to maintain capitalization in an amount equal to or
greater than the Required Minimum Net Worth for a period of 90 days will
result in a cross-default of all Participating Leases of which the Lessee is a
party. In the event that the Participating Lease for one or more of the
Initial Hotels is terminated (other than as a result of a default by the
Lessee), the Required Minimum Net Worth requirement will be reduced on a pro
rata basis, provided that if the Lessee has leased additional hotels, such pro
rata reduction shall be decreased by the pro rata amount of the Lessee's net
worth requirement attributable to such additional hotels.
Security Deposits. Each Lessee (except the Affiliated Lessee) will deliver
security deposits (the "Security Deposits") to the Operating Partnership,
which shall initially consist of Shares and/or Units with an aggregate value
equal to 25% of the rent for the prior fiscal year (the "Required Amount").
For the 1998 lease year, the Security Deposits shall be equal to 25% of the
annual rent the applicable Lessee would have paid for the prior fiscal year
had the applicable Participating Leases been in effect. Thereafter, on an
annual basis, the Operating Partnership will determine the current market
value of the Security Deposit. If the current market value of the Security
Deposit is less than 20% of the rent for the prior fiscal year, the applicable
Lessee will deposit with the Operating Partnership an amount of Common Shares,
Units, cash or a letter of credit which, together with the then existing
Security Deposit, will have a current market value equal to 25% of the rent
payable under the applicable Participating Lease for the prior lease year. The
Affiliated Lessee shall deposit with the Operating Partnership an amount equal
to 50% of Net Cash Flow (defined as gross revenues minus (x) Base Rent,
Participating Rent and Additional Charges, (y) operating expenses incurred in
the operating of Participating Hotel, and (z) income taxes on the Affiliated
Lessee's income from the Participating Hotel) from each of the Participating
Hotels until an amount equal to the Required Amount has been deposited with
the Operating Partnership (the "Base Security Deposit"). From and after
achieving the Base Security Deposit, on an annual basis, the Operating
Partnership will determine the current market value of the Security Deposit.
If the Affiliated Lessee's Security Deposit is less than 20% of the Base Rent,
Participating Rent and Additional Charges for the prior lease year, the
Affiliated Lessee shall deliver 50% of Net Cash Flow to the Operating
Partnership until the Security Deposit is equal to the Required Amount.
Throughout the term, irrespective of the then current market value of the
Security Deposit, the applicable Lessee shall have no right to withdraw,
substitute, or otherwise replace the Security Deposit; provided, however, if
the amount of any applicable Security Deposit exceeds the Required Amount
without consideration of any letter of credit, then the applicable
Participating Lessee shall be entitled to reduce the amount of any letter of
credit to an amount which, together with the then existing Security Deposit,
will be equal to the Required Amount.
Reserves. The Participating Leases for the Initial Hotels obligate the
Company to establish annually a reserve for capital improvements at the
Initial Hotels (including the periodic replacement or refurbishment of FF&E).
The reserve requirements for three of the Initial Hotels operated by Marriott
are contained in certain noncancelable operator agreements with respect to
those hotels that will be assumed in connection with the Formation
Transactions. At the commencement of the Participating Leases, the Company
shall make an aggregate initial reserve deposit of approximately $9.9 million
with respect to the Initial Hotels. Thereafter, the Company, or Marriott, on
behalf of the Company as the case may be, will deposit into the capital
expenditure reserves an amount ranging from 4.0% to 5.5% of total revenue for
the Initial Hotels, with the amount of such reserve with respect to each
Initial Hotel representing projected capital requirements of each hotel. Any
unexpended amounts will remain the property of the Company upon termination of
the Participating Leases. Otherwise, the Lessees will be required, at their
expense, to maintain the Initial Hotels in good order and repair, subject to
ordinary wear and tear, and to make all necessary and appropriate
nonstructural, foreseen and unforeseen, and ordinary and extraordinary repairs
(other than capital repairs) which may be necessary and appropriate to keep
the Initial Hotels in good order and repair.
The Lessees will not be obligated to bear the cost of any capital
improvements or capital repairs to the Initial Hotels. With the consent of the
Company, however, the Lessees may utilize funds from the capital expenditure
reserves to make noncapital and capital additions, modifications or
improvements to the Initial Hotels. All such
63
<PAGE>
alterations, replacements and improvements shall be subject to all the terms
and provisions of the Participating Leases and will become the property of the
Company upon termination of the Participating Leases. The Company will own
substantially all personal property (other than inventory, linens and other
nondepreciable personal property) not affixed to, or deemed a part of, the
real estate or improvements on the Initial Hotels, except to the extent that
ownership of such personal property would cause any portion of the rents under
the Participating Leases not to qualify as "rents from real property" for REIT
income test purposes. See "Federal Income Tax Considerations--Requirements for
Qualification--Income Tests."
Insurance and Property Taxes. The Company is responsible for paying (i) real
estate and personal property taxes on the Initial Hotels (except to the extent
that personal property associated with the Initial Hotels is owned by a
Lessee), (ii) any ground lease payments on the Initial Hotels, (iii) casualty
insurance on the Initial Hotels, and (iv) business interruption insurance on
the Initial Hotels. The aggregate real estate and personal property tax
obligations for the Initial Hotels during the year ended December 31, 1997
were approximately $5.9 million. The Lessees are required to pay for or
reimburse the Company for all liability insurance on the Initial Hotels, with
extended coverage, including comprehensive general public liability, workers'
compensation and other insurance appropriate and customary for properties
similar to the Initial Hotels and naming the Company as an additional insured,
where permitted by law.
Events of Default. Events of Default under the Participating Leases include,
among others, the following:
(i) the failure by a Lessee to pay Base or Participating Rent within ten
days after same is due or, with respect to Radisson Hotel South and Plaza
Tower, ten days after notice of non-payment;
(ii) the failure of a Lessee to observe or perform any other term of a
Participating Lease and the continuation of such failure beyond any
applicable cure or grace period;
(iii) the failure of a Lessee to pay for required insurance;
(iv) the failure of a Lessee to maintain the Required Minimum Net Worth;
(v) should a Lessee or Operator file a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or consent to the appointment of a custodian, receiver,
trustee or other similar office with respect to it or any substantial part
of its assets, or take corporate action for the purpose of any of the
foregoing; or if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Lessee
or Operator, a custodian, receiver, trustee or other similar officer with
respect to the Lessee or Operator or any substantial part of its assets, or
if an order for relief shall be entered in any case or proceeding for
liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding up or liquidation of the Lessee or Operator, or if any
petition for any such relief shall be filed against the Lessee or Operator
and such petition shall not be dismissed within 120 days;
(vi) should a Lessee or Operator cause a default beyond applicable grace
periods, if any, under any Franchise Agreement or Operator Agreement
relating to any Initial Hotel; or
(vii) should a Lessee or Operator voluntarily cease operations of the
Leased Property for more than three (3) days other than by reason of
casualty, condemnation or force majeure.
In addition, an Event of Default will result in a cross-default of all other
Participating Leases, except with respect to the Radisson Hotel South and
Plaza Tower, to which the Lessee is a party.
Indemnification. Under each of the Participating Leases, the Lessees will
indemnify, and will be obligated to hold harmless, the Company, the Advisor
and their officers and trustees, from and against all liabilities, costs and
expenses (including reasonable attorneys' fees and expenses) incurred by,
imposed upon or asserted against the Company or any of them on account of,
among other things, (i) any accident or injury to persons or property on or
about the Initial Hotels, (ii) any misuse by the applicable Lessee or any of
its agents of the leased property,
64
<PAGE>
(iii) any environmental liability caused or resulting from any action or
negligence of the Lessee or Operator (see "The Initial Hotels--Environmental
Matters"); (iv) taxes and assessments in respect of the Initial Hotels (other
than real estate and personal property taxes and income taxes of the Company
on income attributable to the Initial Hotels and capital impositions); (v) the
sale or consumption of alcoholic beverages on or in the real property or
improvements thereon; or (vi) any breach of the Participating Leases by the
Lessee; provided, however, that such indemnification will not be construed to
require the Lessee to indemnify the Company against the Company's own
negligent acts or misconduct.
Assignment and Subleasing. The Lessees will not be permitted to sublet all
or any part of the Initial Hotels or assign their interest under any of the
Participating Leases, other than to affiliates of certain of the applicable
Lessees, without the prior written consent of the Company. No assignment or
subletting will release a Lessee from any of its obligations under the
Participating Leases unless the Company expressly agrees that the Lessee shall
be released from any of its obligations under the Participating Leases.
Participating Lease Modification. In the event that there is (i) a material
increase in the number of rooms available at the Initial Hotel, (ii) a
material increase in the facilities available at the Initial Hotel, (iii) a
significant renovation to the Initial Hotel, (iv) a material change in any
franchise agreement or change in franchise affiliation, or (v) a material
repositioning of the Initial Hotel, the applicable Participating Lease
provisions may be modified accordingly.
Damage to Initial Hotels. In the event of damage to or destruction of any
Initial Hotel covered by insurance which then renders the leased property
unsuitable for its intended use and occupancy as a hotel, the Participating
Lease shall terminate, and the Company shall generally be entitled to retain
the proceeds of insurance. In the event that damage to or destruction of an
Initial Hotel which is covered by insurance does not render the leased
property unsuitable for its intended use and occupancy as a hotel, the Company
generally will be obligated to repair or restore the hotel to substantially
the same condition as existed immediately prior to such damage. In the event
of damage to or destruction of any Initial Hotel that is not covered by
insurance, the Company generally, may either repair, rebuild or restore the
hotel (at the Company's expense) to substantially the same condition as
existed immediately prior to such damage, or terminate the Participating Lease
on the terms and conditions set forth in such Participating Lease.
Condemnation of Initial Hotels. In the event of a total condemnation of an
Initial Hotel, the relevant Participating Lease will terminate with respect to
such Initial Hotel as of the date of taking, and the Company will be entitled
to all of the condemnation award in accordance with the provisions of the
Participating Lease. In the event of a partial taking which does not render
the property unsuitable for its intended use as a hotel, then the Company
generally will be obligated to restore the untaken portion of the property,
and the Company shall contribute the condemnation award to the cost of such
restoration.
Termination of Participating Leases for Failure to Meet Performance
Goals. The Company will have the right to terminate the Participating Lease
for an Initial Hotel if the Initial Hotel (x) in any two lease years during
the term of the Participating Lease fails to generate 95% of the actual gross
revenues generated in the preceding fiscal year and (y) in such lease year
during the term of the Participating Lease the "REVPAR Yield Index" (defined
as the percentage obtained by dividing the REVPAR of the applicable Initial
Hotel by the REVPAR of a defined reference group of competitive hotels) of the
Initial Hotel shall have declined by more than 5% from the Initial Hotel's
REVPAR Yield Index at the end of the prior lease year, or (i) in any one lease
year during the term of the Participating Lease fails to generate 90% of the
actual gross revenues generated in the prior lease year and (ii) in such lease
year during the term of the Participating Lease the REVPAR Yield Index of the
Initial Hotel shall have declined by more than 5% from the Initial Hotel's
REVPAR Yield Index at the end of the prior lease year (each a "Revenue
Performance Shortfall"), unless such failures are caused by an act of God or
other force majeure events, including material, extraordinary economic events
which are not reasonably foreseeable. In the event that an Initial Hotel fails
to meet this performance goal in any given year, the applicable Lessee may
cure such failure by paying to the Company the Participating Rent payment that
would have been payable had the Revenue Performance Shortfall not occurred;
provided, however, that, except with respect to Radisson and Meridien, the
opportunity to cure shall be available to a Lessee only once throughout the
term of the applicable Participating Lease.
65
<PAGE>
Termination of Participating Leases upon Disposition of Initial Hotels. In
the event the Company enters into an agreement to sell or otherwise transfer
an Initial Hotel, the Company, at its option, may terminate the Participating
Lease upon 30 days' notice to the applicable Lessee; provided that the Company
either (i) pays to the applicable Lessee the present value of a stream of
monthly payments of monthly cash flow (defined as the average, for each of the
12 complete months preceding the date of termination, of the excess of the
gross revenues over the sum of the rent and gross operating expenses) for
between 50% and 75% of the number of complete months remaining in the
unexpired term of the Participating Lease as of the date of closing of the
sale (such percentage varying among the Participating Leases), discounted at a
rate of between 10% and 15% per annum (the "Termination Fee"), or (ii) offers
to lease to the applicable Lessee, within the 12 month period following the
closing of the sale, one or more substitute hotels pursuant to one or more
leases that would create for the applicable Lessee leasehold estates with
respect to hotels that (a) are (i) within the continental U.S., and (ii)
reasonably comparable to the Initial Hotel's quality, service and amenities,
and (b) have an aggregate fair market value of not less than the fair market
value of the original leasehold estate; provided, however, with respect to the
Participating Leases executed by Meridien, for the first three fiscal years
the early termination fee shall be the greater of the Termination Fee or a
percentage of gross revenues as determined in such Participating Leases.
Termination of Participating Leases upon Change in Tax Laws. In the event
that changes in Federal income tax laws allow the Company or a subsidiary or
affiliate to directly operate hotels, the Company will have the right to
terminate all, but not less than all, Participating Leases with the Lessees in
which event the Company will enter into management contracts with affiliates
of the applicable Lessee for the terminated hotels upon market terms and
conditions to be mutually agreed upon; provided, however, with respect to
Radisson and Durbin, the Company and the applicable Lessee will enter into a
management contract substantially in the form that existed at the time of
commencement of the applicable Participating Leases.
Except as described above, in the event of a termination of seven of the
Participating Leases, the related Operator Agreement also will terminate.
Other Lease Covenants. Each Lessee has agreed that during the term of its
Participating Lease, the Lessee will not engage in any unrelated business
activities. The owners of each Lessee and their parent entities have agreed
that, for the term of its Participating Lease, any sale of their interest in
such Lessee, or of their hotel management businesses in general, will subject
their interest in the Lessee to a limited fair market value acquisition right
in favor of a designee of the Company. In the event that the Company exercises
this right, any nonselling partner of the Lessee will have the right to put
its interest in the Lessee to the Company's designee at a price equal to the
fair market value of such interest. The Participating Leases require each
Lessee to make available to the Company unaudited monthly and quarterly and
audited annual operating information for each Initial Hotel leased by such
Lessee.
Inventory. All inventory required in the operation of the Initial Hotels
will be owned by the applicable Lessee. Upon termination of a related
Participating Lease, the Lessee shall surrender the related Initial Hotel
together with all such inventory to the Company.
Right of First Refusal. Pursuant to the Participating Lease between the
Operating Partnership and Radisson with respect to the Radisson Hotel South
and Plaza Tower, in the event of a sale by the Operating Partnership of the
hotel to a third-party, Radisson is granted a limited right of first refusal
to purchase the hotel on the same terms and conditions as those offered to the
third-party.
PROPERTY LEASES
Two of the Initial Hotels are subject to ground leases or air space leases
with third parties with respect to the land or air space constituting all or a
portion of the Initial Hotels. The ground leases are triple net leases which
require the tenant to pay all expenses of owning and operating the property
subject to the ground leases, including real estate taxes and structural
maintenance and repair.
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<PAGE>
Le Meridien New Orleans is subject to a ground lease which terminates in May
2081. The Operating Partnership will be substituted as tenant under the ground
lease simultaneously with, or shortly after, the Offering. The lease requires
a fixed rent payment equal to $425,000 per year until May 2002. Thereafter,
the fixed rent payment shall be adjusted every ten years and shall be equal to
the lesser of (i) 10% of the fair market value of the land or (ii) the greater
of (x) 2.5% of the room revenues or (y) 1.25% of gross revenues, but in no
event shall fixed rent be less than $425,000. The lease also provides the
Company with a right of first refusal to purchase the land after receipt by
the landlord of a bona fide third party offer to purchase acceptable to the
landlord. The Le Meridien New Orleans is also subject to an air space lease
with the City of New Orleans with respect to the balconies located at the
Initial Hotel and which terminates in June 2044. The Operating Partnership
will be substituted as tenant under the air space lease simultaneously with,
or shortly after, the Offering. The annual fixed rental payment is $3,740,
subject to a 10% increase every five years, with the next rental increase to
occur in 1999.
Marriott Seaview Resort is subject to a ground lease with respect to
approximately 160 acres which are currently being utilized as an 18 hole golf
course for the benefit of the resort. The Operating Partnership will be
substituted as tenant under the ground lease simultaneously with, or shortly
after, the Offering. The ground lease terminates in December 2012, with 15
successive renewal options, each for a ten-year term, totalling 150 years of
renewals. The lease requires annual rental payments equal to $1.00 for all
years, including all renewal years. The landlord, an affiliate of Marriott,
has certain reserved rights of access for non-exclusive use of the golf
course.
Radisson South Hotel and Plaza Tower is subject to two ground leases for
parking spaces. The first ground lease, which consists of approximately 273
parking spaces, terminates on December 31, 2005, subject to nine options to
extend for consecutive periods of ten years each in favor of the Company. The
Operating Partnership will be substituted as tenant under the ground lease
simultaneously with, or shortly after, the Offering. The current annual rental
is approximately $75,000, which is adjusted each year in accordance with the
applicable Consumer Price Index. The lease also provides the Company with an
option to purchase the property subject to such lease at any time during the
term of the lease. The second ground lease, which consists of approximately 51
parking spaces, terminates on October 3, 2004 and is subject to two options
which extend for consecutive periods of ten and seven years, respectively,
each in favor of the Company. The current annual rental is $13,800 and will
increase to $18,000 from and after October 4, 1999. If the Company exercises
the option to extend, the rent for each subsequent year of the respective
option periods will increase by five percent over the immediately preceding
year.
CONDOMINIUM DECLARATION
Le Meridien Dallas is subject to the Condominium Declaration. The
Condominium Declaration provides for the Association to levy an annual
operating assessment and capital assessment against the property. The annual
operating assessment for 1998 is $500,000 and no capital assessments are
currently pending against the Initial Hotel. Pursuant to a separate agreement,
a limited right of first refusal to purchase the Initial Hotel in the event of
any proposed third party sale exists in favor of KAB Plaza Partners, L.P. as
the owner of the balance of the Condominium Units. The right of first refusal
has expired with respect to the acquisition by the Company.
CERTAIN INFORMATION REGARDING THE PARTICIPATING LEASES
The table below sets forth (i) the annual Base Rent, (ii) Participating Rent
formulas and (iii) the pro forma rent that would have been paid for each
Initial Hotel pursuant to the terms of the Participating Leases based on pro
forma revenues for the year ended December 31, 1997, as if the Company had
owned the Initial Hotels, the Participating Leases were in effect and January
1, 1997 was the beginning of a Lease year. For each Initial Hotel, pro forma
Participating Rent is greater than Base Rent.
67
<PAGE>
PARTICIPATING LEASE TERMS
<TABLE>
<CAPTION>
LEASE
EXPIRATION BASE RENT
PROPERTY DATE YEAR IN 000'S
-------- ---------- ---------
<S> <C> <C>
Radisson Hotel South and Plaza Tower,
Bloomington,
MN............. 2009 $ 5,300
Le Meridien New
Orleans,
New Orleans,
LA(3).......... 2008 $ 6,600
LaGuardia Air-
port Marriott,
New York, NY... 2008 $ 4,730
Le Meridien Dal-
las,
Dallas, TX(4).. 2008 $ 2,655
Omaha Marriott
Hotel,
Omaha, NE...... 2008 $ 2,615
Marriott Seaview
Resort,
Galloway Town-
ship, NJ....... 2008 $ 4,700
Radisson Tampa
East Hotel,
Tampa, FL(5)... 2009 $ 2,220
Holiday Inn
Plaza Park,
Visalia, CA.... 2004 $ 975
Holiday Inn
Beachside,
Key West, FL... 2007 $ 2,108
Le Montrose All
Suite Hotel De Gran Luxe,
West Hollywood, $ 2,300
CA............. 2009 -------
Total........... $34,183
<CAPTION>
PARTICIPATING
RENT FORMULA
PROPERTY ($) IN THOUSANDS
-------- ----------------
<S> <C> <C> <C> <C>
Radisson Hotel South and Plaza Tower,
Bloomington,
MN............. Rooms: 22.0% of first $10,300, 60.0% of next $3,450, 71.0% thereafter
F&B: 20.0% of first $7,200, 34.0% of next $2,800, 45.0% thereafter
Telephone: 20.0% of first $345, 30.0% of next $55, 50.0% thereafter
Other: 20.0% of first $1,100, 30.0% of next $600, 50.0% thereafter
Le Meridien New
Orleans,
New Orleans,
LA(3).......... Rooms: 24.0% of first $11,500, 70.0% of next $4,300, 73.0% thereafter
F&B: 21.0% of first $2,900, 40.0% of next $1,725, 50.0% thereafter
Telephone: 20.0% of first $550, 35.0% of next $280, 50.0% thereafter
Other: 20.0% of first $750, 35.0% of next $390, 60.0% thereafter
LaGuardia Air-
port Marriott,
New York, NY... Rooms: 20.0% of first $14,750, 68.0% of next $4,250, 70.0% thereafter
F&B: 15.0% of first $6,500, 20.0% of next $1,500, 25.0% thereafter
Telephone: 15.0% of first $400, 20.0% of next $120, 25.0% thereafter
Other: 15.0% of first $450, 20.0% of next $350, 25.0% thereafter
Le Meridien Dal-
las,
Dallas, TX(4).. Rooms: 20.0% of first $9,515, 63.0% of next $1,720, 70.0% thereafter
F&B: 10.0% of first $3,450, 25.0% of next $550, 35.0% thereafter
Telephone: 25.0% of first $380, 45.0% of next $95, 50.0% thereafter
Other: 20.0% of first $30, 45.0% of next $145, 55.0% thereafter
Omaha Marriott
Hotel,
Omaha, NE...... Rooms: 20.0% of first $7,000, 60.0% of next $1,970, 65.0% thereafter
F&B: 20.0% of first $3,430, 35.0% of next $1,130, 45.0% thereafter
Telephone: 20.0% of first $180, 30.0% of next $25, 35.0% thereafter
Other: 20.0% of first $295, 30.0% of next $85, 35.0% thereafter
Marriott Seaview
Resort,
Galloway Town-
ship, NJ....... Rooms: 11.0% of first $7,650 60.0% of next $6,350, 69.0% thereafter
F&B: 10.0% of first $8,800, 40.0% of next $1,700, 45.0% thereafter
Telephone: 20.0% of first $300, 25.0% of next $100, 50.0% thereafter
Golf: 20.0% of first $4,200, 35.0% of next $800, 50.0% thereafter
Other: 20.0% of first $510, 50.0% of next $90, 50.0% thereafter
Radisson Tampa
East Hotel,
Tampa, FL(5)... Rooms: 25.0% of first $5,700, 70.0% of next $975, 75.0% thereafter
F&B: 21.0% of first $1,700, 30.0% of next $1,300, 37.0% thereafter
Telephone: 25.0% of first $150, 40.0% of next $70, 50.0% thereafter
Other: 30.0% of first $50, 45.0% of next $80, 60.0% thereafter
Holiday Inn
Plaza Park,
Visalia, CA.... Rooms: 20.0% of first $3,100 65.0% of next $500, 78.0% thereafter
F&B: 10.0% of first $1,500, 20.0% of next $800, 35.0% thereafter
Phone/Other: 15.0% of first $250, 35.0% of next $100, 40.0% thereafter
Holiday Inn
Beachside,
Key West, FL... Rooms: 26.0% of first $4,565 65.0% of next $2,185, 76.0% thereafter
F&B: 20.0% of first $500, 30.0% of next $750, 40.0% thereafter
Telephone: 20.0% of first $70, 35.0% of next $80, 40.0% thereafter
Other: 20.0% of first $50, 40.0% of next $50, 45.0% thereafter
Le Montrose All
Suite Hotel De Gran Luxe,
West Hollywood,
CA............. Rooms: 25.0% of first $3,000, 68.0% of next $2,780, 75.0% thereafter
Other: 37.0% of first $1,100, 45.0% of next $900, 55.0% thereafter
Total...........
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA PARTICIPATING RENT
-----------------------------------------------
TOTAL
PROPERTY REVENUE(1) ROOM F&B(2) TELEPHONE OTHER GOLF TOTAL
-------- ---------- ------- ------- --------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Radisson Hotel South and Plaza Tower,
Bloomington,
MN............. $ 26,215 $ 4,416 $ 2,488 $131 $ 385 $ 0 $ 7,420
Le Meridien New
Orleans,
New Orleans,
LA(3).......... $ 23,396 $ 6,762 $ 1,154 $183 $ 332 $ 0 $ 8,431
LaGuardia Air-
port Marriott,
New York, NY... $ 26,509 $ 4,849 $ 1,179 $122 $ 132 $ 0 $ 6,282
Le Meridien Dal-
las,
Dallas, TX(4).. $ 15,500 $ 2,705 $ 527 $128 $ 52 $ 0 $ 3,412
Omaha Marriott
Hotel,
Omaha, NE...... $ 14,695 $ 2,499 $ 1,384 $ 46 $ 98 $ 0 $ 4,027
Marriott Seaview
Resort,
Galloway Town-
ship, NJ....... $ 29,321 $ 2,976 $ 1,832 $ 79 $ 150 $1,633 $ 6,670
Radisson Tampa
East Hotel,
Tampa, FL(5)... $ 10,329 $ 2,031 $ 906 $ 56 $ 55 $ 0 $ 3,048
Holiday Inn
Plaza Park,
Visalia, CA.... $ 5,982 $ 933 $ 271 $ 54 $ 0 $ 0 $ 1,258
Holiday Inn
Beachside,
Key West, FL... $ 7,916 $ 2,458 $ 297 $ 38 $ 30 $ 0 $ 2,823
Le Montrose All
Suite Hotel De Gran Luxe,
West Hollywood, $ 6,999 $ 2,259 $ 0 $ 0 $ 713 $ 0 $ 2,972
CA............. ---------- ------- ------- --------- ------ ------ -------
Total........... $166,862 $31,888 $10,038 $837 $1,947 $1,633 $46,343
</TABLE>
- ------
(1) Represents hotel revenues (dollars in thousands).
(2) Food and Beverage Revenue.
<TABLE>
<S> <C> <C> <C> <C> <C>
(3) Le Meridien New Orleans participating rent thresh-
olds will be adjusted in 1999 as follows: Rooms: 24.0% of first $12,219, 70.0% of next $4,569, 73.0% thereafter
F&B: 21.0% of first $3,081, 40.0% of next $1,833, 50.0% thereafter
Telephone: 20.0% of first $584, 35.0% of next $298, 50.0% thereafter
Other: 20.0% of first $797, 35.0% of next $414, 60.0% thereafter
(4) Le Meridien Dallas' participating rent thresholds
will be adjusted in 1999 as follows: Rooms: 20.0% of first $9,943, 63.0% of next $1,797, 70.0% thereafter
F&B: 10.0% of first $3,605, 25.0% of next $575, 35.0% thereafter
Telephone: 25.0% of first $391, 45.0% of next $98, 50.0% thereafter
Other: 20.0% of first $31, 45.0% of next $149, 55.0% thereafter
(5) Radisson Tampa East Hotel's participating rent
thresholds will be adjusted in 1999 as follows: Rooms: 25.0% of first $6,726, 70.0% of next $1,151, 75.0% thereafter
F&B: 21.0% of first $2,006, 30.0% of next $1,534, 37.0% thereafter
Telephone: 25.0% of first $177, 40.0% of next $83, 50.0% thereafter
Other: 30.0% of first $59, 45.0% of next $94, 60.0% thereafter
</TABLE>
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FRANCHISE AND BRAND AGREEMENTS
Two of the ten Initial Hotels are operated under franchise licenses with
nationally recognized hotel companies and seven are operated pursuant to
agreements that include the right to use a hotel brand name. The Company
believes the public's perception of quality associated with a hotel brand is
an important feature in the operation of a hotel. Franchisors and licensors of
hotel brands provide a variety of benefits for licensees which include
national advertising, publicity and other marketing programs designed to
increase brand awareness, training of personnel, continuous review of quality
standards and centralized reservation systems.
The franchise licenses generally specify certain management, operational,
recordkeeping, accounting, reporting and marketing standards and procedures
with which the applicable Operator must comply. The franchise and brand
licenses generally obligate the licensees to comply with standards and
requirements with respect to training of operational personnel, safety,
maintaining specified insurance, the types of services and products ancillary
to guest room services that may be provided by the Operator, display of
signage, and the type, quality and age of FF&E included in guest rooms,
lobbies and other common areas.
The franchise licenses with respect to Holiday Inn Plaza Park and Holiday
Inn Beachside Resort expire in October 2004 and July 2007, respectively. The
franchise licenses provide for termination at the franchisor's option upon the
occurrence of certain events, including the applicable franchisee's failure to
pay royalties and fees or perform its other covenants under the license
agreement, bankruptcy, abandonment of the franchise, commission of a felony,
assignment of the license without the consent of the franchisor, or failure to
comply with applicable law in the operation of the relevant Initial Hotel. The
franchise license agreements do not renew automatically upon expiration. The
franchisee is responsible for making all payments under the franchise
agreements to the franchisors. Under the franchise agreements the Company,
which is the franchisee, pays franchise royalty fees, marketing fees, and
reservation fees equal to 7.5% of room revenue.
LE MERIDIEN(R) IS A REGISTERED TRADEMARK OF FORTE, INC., WHICH HAS NOT
ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE
INITIAL HOTELS SET FORTH IN THIS PROSPECTUS. THE GRANT OF A LICENSE TO USE THE
LE MERIDIEN(R) BRAND NAME FOR CERTAIN OF THE INITIAL HOTELS IS NOT INTENDED
AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR
ENDORSEMENT BY FORTE, INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR
DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP OR THE COMMON SHARES
OFFERED HEREBY.
RADISSON(R) IS A REGISTERED TRADEMARK OF RADISSON HOTELS INTERNATIONAL,
INC., WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL
RESULTS OF THE INITIAL HOTELS SET FORTH IN THIS PROSPECTUS. THE GRANT OF A
LICENSE TO USE THE RADISSON(R) BRAND NAME FOR AN INITIAL HOTEL IS NOT INTENDED
AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR
ENDORSEMENT BY RADISSON HOTELS INTERNATIONAL, INC. (OR ANY OF ITS AFFILIATES,
SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP OR THE
COMMON SHARES OFFERED HEREBY.
MARRIOTT(R) IS A REGISTERED TRADEMARK OF MARRIOTT INTERNATIONAL, INC., WHICH
HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF
THE INITIAL HOTELS SET FORTH IN THIS PROSPECTUS. THE GRANT OF A LICENSE TO USE
THE MARRIOTT(R) BRAND NAME FOR CERTAIN OF THE INITIAL HOTELS IS NOT INTENDED
AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR
ENDORSEMENT BY MARRIOTT INTERNATIONAL, INC. (OR ANY OF ITS AFFILIATES,
SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP OR THE
COMMON SHARES OFFERED HEREBY.
HOLIDAY INN(R) IS A REGISTERED TRADEMARK OF HOLIDAY INNS FRANCHISING, INC.
("HOLIDAY INNS"). HOLIDAY INNS HAS NOT ENDORSED OR APPROVED THE OFFERING OR
ANY
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OF THE FINANCIAL RESULTS OF THE INITIAL HOTELS SET FORTH IN THIS PROSPECTUS
NOR DOES HOLIDAY INNS HAVE ANY INTEREST IN THE COMPANY OR THE COMMON SHARES
OFFERED HEREBY, EXCEPT AS A FRANCHISOR. A GRANT OF A HOLIDAY INN(R) FRANCHISE
LICENSE FOR CERTAIN OF THE INITIAL HOTELS IS NOT INTENDED AS, AND SHOULD NOT
BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY HOLIDAY
INNS (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE
OPERATING PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.
AFFILIATED LESSEE
LaSalle will form the Affiliated Lessee to serve as lessee for the three
Initial Hotels for which the Operator has declined on account of internal
policy reasons to serve as lessee. The three hotels are Marriott Seaview
Resort, LaGuardia Airport Marriott and the Omaha Marriott Hotel.
OPERATOR AGREEMENTS
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership may operate hotels or related properties. The Lessees
will engage the Operators to operate the Initial Hotels pursuant to operator
agreements (the "Operator Agreements").
The Operator Agreements for the Initial Hotels which are leased to
unaffiliated Lessees and operated by affiliates of such unaffiliated Lessees
provide that: (i) the payment of management fees by the applicable Lessee is
subordinate to the applicable Lessee's obligations to the Company under the
applicable Participating Lease; (ii) the Company will have the right to
approve the initial Operator and the form of the Operator Agreement; (iii) the
applicable Lessee may not, without the prior approval of the Company, change
or terminate the Operator, modify or terminate the Operator Agreement, or
permit the Operator Agreement to be assigned; and (iv) each Operator Agreement
is coterminous with the applicable Participating Lease. The following
summaries of the Operator Agreements with unaffiliated parties are qualified
in their entirety by reference to the forms of Operator Agreements filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Radisson Hotel South and Plaza Tower. Radisson Hotel South and Plaza Tower
will be leased to and operated by affiliates of Radisson. The management fee
under the applicable Operator Agreement is 4% of gross revenues, determined in
accordance with the terms of the applicable Operator Agreement.
Le Meridien New Orleans Hotel. Le Meridien New Orleans Hotel will be leased
to and operated by affiliates of Meridien. The management fee under the
applicable Operator Agreement is 2.5% of gross revenues, determined in
accordance with the terms of the applicable Operator Agreement.
Le Meridien Dallas Hotel. Le Meridien Dallas Hotel will be leased to and
operated by affiliates of Meridien. The management fee under the applicable
Operator Agreement is 2.5% of gross revenues, determined in accordance with
the terms of the applicable Operator Agreement.
Holiday Inn Beachside Resort. Holiday Inn Beachside Resort will be leased to
and operated by an affiliate of Durbin. The management fee under the
applicable Operator Agreement is 3% of gross revenues, determined in
accordance with the terms of the applicable Operator Agreement.
Radisson Tampa East Hotel. Prior to or contemporaneously with the completion
of the Offering the Company anticipates that Radisson Tampa East Hotel will be
operated by an affiliate of Radisson. The management fee under the applicable
Operator Agreement will be 4% of gross revenues, determined in accordance with
the terms of the applicable Operator Agreement.
Holiday Inn Plaza Park. Holiday Inn Plaza Park Hotel will be leased to and
operated by OLS. The management fee under the applicable Operator Agreement is
3% of gross revenues, determined in accordance with the terms of the
applicable Operator Agreement.
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Le Montrose All Suite Hotel De Gran Luxe. The Le Montrose All Suite Hotel De
Gran Luxe will be leased to and operated by OLS. The management fee under the
applicable Operator Agreement is 3% of gross revenues, determined in
accordance with the terms of the applicable Operator Agreement.
The following summaries of the Operator Agreements for the Initial Hotels
which are leased to the Affiliated Lessee and operated by Marriott are
qualified by reference to the forms of Operator Agreements filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
LaGuardia Airport Marriott. LaGuardia Airport Marriott will be leased to the
Affiliated Lessee and operated by Marriott pursuant to an Operator Agreement
which has a term ending December 29, 2006, with five ten-year renewals by the
Operator. The management fee under the applicable Operator Agreement is 3% of
gross revenues plus an incentive fee of 20% of operating profit, determined in
accordance with the terms of the applicable Operator Agreement. The applicable
Operator Agreement provides the Operator a right of first refusal for the sale
or lease of this Initial Hotel to a third party or the right to terminate the
Operator Agreement upon such sale or lease.
Omaha Marriott Hotel. Omaha Marriott Hotel will be leased to the Affiliated
Lessee and operated by Marriott pursuant to an Operator Agreement which has a
term ending December 1, 2016 with three ten-year renewals by the Operator. The
management fee under the applicable Operator Agreement is 3% of gross revenues
plus an incentive fee equal to 20% of operating profit, determined in
accordance with the terms of the applicable Operator Agreement. The applicable
Operator Agreement provides the Operator with the right to terminate the
Operator Agreement upon any subsequent sale of this Initial Hotel.
Marriott Seaview Resort. Marriott Seaview Resort will be leased to the
Affiliated Lessee and operated by Marriott pursuant to an Operator Agreement
which has a term ending May 30, 2008 with one five-year renewal by the tenant
and five, five-year renewals by the Operator. The management fee under the
applicable Operator Agreement is 3% of gross revenues plus an incentive fee of
20% of operating profit, determined in accordance with the terms of the
applicable Operator Agreement. The applicable Operator Agreement provides the
Operator a right of first refusal for the sale or lease of this Initial Hotel
to a third party or the right to terminate the Operator Agreement upon such
sale.
EXCLUDED PROPERTIES
In addition to the interests of LaSalle in the Initial Hotels which are
being acquired by the Company, LaSalle also owns interests in or participates
in a limited number of other hotel properties that will not be acquired by the
Company at the time of the completion of the Offering and the Formation
Transactions (the "Excluded Properties"). These interests are (i) two hotels
held by a private REIT advised by LaSalle that has invested the majority of
its assets in office properties, (ii) a partnership interest in one hotel
situated in a mixed-use complex currently held in a commingled fund for which
LaSalle serves as advisor but is expected to be offered for sale in 1998,
(iii) one hotel that is owned principally by a partner with LaSalle for which
LaSalle serves as advisor and is currently being marketed for sale, (iv) one
hotel under construction in a mixed-use complex for which LaSalle is serving
solely as development agent, without any ownership interest in the hotel, (v)
one hotel in which LaSalle and its partners own a 50% interest for which
LaSalle serves as advisor, and (vi) a partnership interest in one hotel owned
by a client for whom LaSalle serves as an advisor.
EMPLOYEES
The Company has no employees. The Advisor, whose sole activity, with the
exception of the Excluded Properties, is advising the Company, manages the
day-to-day operations of the Company. The Advisor has assembled a team of
seven hotel acquisition and investment management professionals, collectively
possessing extensive experience in hotel real estate, with access to
additional personnel from LaSalle. These persons are employed directly by and
dedicated to providing the required services to the Company by the Advisor,
with the exception of activities related to the Excluded Properties.
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ENVIRONMENTAL MATTERS
Under various Federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person who arranges for the disposal or treatment of a hazardous or toxic
substance at a property owned by another, or who transports such substances to
such property, may be liable for the costs of removal or remediation of such
substance released into the environment at that property. The costs of
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to promptly remediate such substances, may
adversely affect the owner's ability to sell such real estate or to borrow
using such real estate as collateral. In connection with the ownership and
operation of the Initial Hotels, the Company, the Operating Partnership, or
the Lessee, as the case may be, may be potentially liable for such costs.
Phase I environmental site assessments ("ESAs") have been performed on all
of the Initial Hotels by a qualified independent environmental engineer. The
most recent Phase I reports for the Initial Hotels were prepared in 1997. The
purpose of the Phase I ESAs is to identify potential sources of contamination
for which the Initial Hotels may be responsible and to assess the status of
environmental regulatory compliance. The Phase I ESAs include historical
reviews of the Initial Hotels, reviews of certain public records, preliminary
investigations of the sites and surrounding properties, screening for the
presence of ACMs, polychlorinated biphenyls, underground storage tanks, and
the preparation and issuance of a written report. The Phase I ESAs do not
include invasive procedures, such as soil sampling or ground water analysis.
The ESAs have not revealed any environmental liability or compliance
concerns that the Company believes would have a material adverse effect on the
Company's business, assets, results of operation, or liquidity, nor is the
Company aware of any material environmental liability or concerns.
Nevertheless, it is possible that the Phase I ESAs did not reveal all
environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which the Company is
currently unaware. Moreover, no assurance can be given that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Initial Hotels will not be
affected by the condition of the properties in the vicinity of the Initial
Hotels (such as the presence of leaking underground storage tanks) or by third
parties unrelated to the Operating Partnership or the Company.
Neither the Company nor, to the knowledge of the Company, any of the current
owners of the Initial Hotels has been notified by any governmental authority
of any material noncompliance, liability or claim relating to hazardous or
toxic substances or other environmental substances in connection with any of
its hotels.
COMPETITION
The hotel industry is highly competitive. Each of the Initial Hotels is
located in a developed area that includes other hotel properties. The number
of competitive hotel properties in a particular area could have a material
adverse effect on occupancy, ADR and REVPAR of the Initial Hotels or at hotel
properties acquired in the future.
The Company may be competing for investment opportunities with entities that
have substantially greater financial resources than the Company. These
entities may generally be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to
the Company and increase the bargaining power of property owners seeking to
sell.
INSURANCE
The Company will carry comprehensive liability, fire, extended coverage and
business interruption insurance with respect to the Initial Hotels, with
policy specifications, insured limits and deductibles customarily
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carried for similar hotels. The Company will carry similar insurance with
respect to any other hotels developed or acquired in the future. There are,
however, certain types of losses (such as losses arising from wars, certain
losses arising from hurricanes and earthquakes, and losses arising from other
acts of nature) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a loss
in excess of insured limits occur, the Company could lose its capital invested
in the affected hotel, as well as the anticipated future revenues from such
hotel, and would continue to be obligated on any mortgage indebtedness or
other obligations related to the hotel. Any such loss could adversely affect
the business of the Company. Management of the Company believes the Initial
Hotels are adequately insured.
LEGAL PROCEEDINGS
Neither the Company nor the Operating Partnership is currently involved in
any material litigation nor, to the Company's knowledge, is any material
litigation currently threatened against the Company or the Operating
Partnership. LaSalle and the Lessees have advised the Company that they
currently are not involved in any material litigation, other than routine
litigation arising in the ordinary course of business, substantially all of
which is expected to be covered by liability insurance. The current owners of
the Initial Hotels have represented to the Operating Partnership that there is
no material litigation threatened against or affecting the Initial Hotels.
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REIT MANAGEMENT
The Advisor is a New York based wholly owned subsidiary of LaSalle, a
leading real estate service and investment firm that provides investment
management services, management services and corporate and financial services
to corporations and other real estate owners, users and investors worldwide.
Founded in 1968, LaSalle is headquartered in Chicago, Illinois, and maintains
corporate offices in ten United States cities including New York, and six
international markets. LaSalle also maintains over 300 property management
offices throughout the United States. In July 1997, LaSalle completed an
initial public offering of its common stock, which is listed on the NYSE.
Through its investment management arm, LaSalle provides investment
management services to institutional, corporate and high net worth individuals
investing in real estate. LaSalle believes it is the fourth largest manager of
institutional equity capital invested in U.S. real estate properties and
securities as well as the fourth largest manager of institutional real estate
equity investments in the United Kingdom. As of December 31, 1997, LaSalle had
approximately $15.0 billion of real estate assets under management, of which
$12.7 billion represented direct investments in properties and $2.3 billion
consisted of public real estate securities investments.
LaSalle, through the Advisor, will conduct all of its future hotel
investment activities in domestic hotel properties exclusively for the benefit
of the Company. The Advisor is led by a dedicated team of experienced hotel
investment professionals which has overseen numerous acquisitions,
renovations, brand conversions, operator selections, management contract
negotiations, lease and franchise negotiations, property repositionings and
the successful disposition of hotel investments. Management of the Advisor
also oversaw the completion of the development and opening of the 370 room
super-luxury Four Seasons New York Hotel, and is currently responsible for the
development of a 259 room luxury full service hotel in Philadelphia on behalf
of the University of Pennsylvania.
In order to provide incentives to the Advisor and align its interests with
those of the shareholders of the Company, the Company has entered into an
incentive based advisory agreement with the Advisor. For managing and advising
the Company and providing resources and a scope of services not otherwise
affordable to the Company, the Advisor will receive a base fee to be paid in
cash, calculated as a percentage of the Company's NOI and an incentive fee to
be paid in Common Shares or Units based on growth in the Company's FFO per
share. In addition, upon completion of the Offering, LaSalle will own
approximately 10.5% of the equity market capitalization of the Company,
thereby further aligning the interests of LaSalle and the Advisor with those
of the Company's shareholders. See "Risk Factors--Conflicts."
ADVISORY AGREEMENT
The following is a summary of certain terms of the Advisory Agreement. The
summary is qualified in its entirety by reference to the Advisory Agreement,
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
The Advisor will provide acquisition, management, advisory and
administrative services to the Company pursuant to an Advisory Agreement. The
initial term of the Advisory Agreement extends through December 31, 1999,
subject to successive, automatic one year renewals unless terminated according
to the terms of the Advisory Agreement. The Company may terminate the Advisory
Agreement without termination fees or penalties upon notice given at least 180
days prior to the then current term of the Advisory Agreement.
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Compensation
For its services under the Advisory Agreement, the Advisor will receive an
annual base fee, payable quarterly, to be paid in cash based upon the
Company's net operating income ("NOI") as defined below, in accordance with
the following schedule:
<TABLE>
<CAPTION>
INCREMENTAL NOI OF COMPANY
----------------------------------
UP TO BUT
FROM EXCLUDING BASE FEE %
------------ ---------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
$ 0 $100,000 5.0%
$100,000 $225,000 an additional 4.8% on such increment
$225,000 $350,000 an additional 4.6% on such increment
$350,000 $475,000 an additional 4.4% on such increment
$475,000 $600,000 an additional 4.2% on such increment
$600,000 any excess an additional 4.0% on such increment
</TABLE>
In addition, an annual incentive advisory fee will be payable each year in
arrears equal to 25% of the result of multiplying (A) the amount by which the
actual increase in FFO per share, if any, for each calendar year (each a
"Measurement Year") as compared to FFO per share for the previous year (the
"Prior Year"), exceeds an increase of 7% per annum in FFO per share for the
Prior Year by (B) weighted average Common Shares and Units outstanding for the
Measurement Year. For example, if the Prior Year FFO per share equaled $0.60
and the FFO per share for the Measurement Year equals $0.68, the incentive
advisory fee for the Measurement Year would be calculated as follows: 25% of
(A) the FFO per share growth rate above 7% for the Measurement Year, in this
example, $0.68 minus the product of $0.60 multiplied by 1.07, multiplied by
(B) the weighted average of Common Shares and Units outstanding for the
Measurement Year.
Payment of the Incentive Fee shall be made in the Company's Common Shares
and Units. The number of Common Shares and Units shall be the whole number of
shares equal to the value of the Incentive Fee divided by the average closing
price of the Common Shares on the NYSE during the Measurement Year. For the
year ending December 31, 1998, the sum of the Base Fee and the Incentive Fee
shall not exceed 6% of the Company's NOI. There shall be no limitation on fees
earned by the Advisor under the Advisory Agreement for years ending after
December 31, 1998. For purposes of the Advisory Agreement, NOI for any period
means total revenues (excluding gains or losses from the sale of Company
assets, or any refinancings thereof) applicable to such period, less the
operating expenses applicable to such period (excluding advisory fees payable
hereunder to the Advisor, and excluding amounts attributable to depreciation
and amortization, or reserves for bad debts, or interest expense or other
similar non-cash items or reserves) after adjustment for unconsolidated
partnerships and joint ventures and before adjustment for minority interest in
the Operating Partnership.
Non-competition
The Advisor and its Affiliates will not invest directly or indirectly or on
behalf of others in any hotel properties in the United States (the
"Competitive Hotels"), other than through the Company except for the Excluded
Properties and except for hotels constituting part of a mixed-use property
where less than 40% of the property's NOI is attributable to the hotel.
Notwithstanding the foregoing, no Affiliate shall be restricted from acquiring
interests, directly or indirectly, in Competitive Hotels or advising with
respect to Competitive Hotels to the extent that such Affiliate (i) is a
"registered investment adviser" under the Investment Advisers Act of 1940, as
amended, and makes such acquisition or gives such advice in the ordinary
course of management activities for securities investments, (ii) acquires a
company or other entity which owns or provides asset management services with
respect to Competitive Hotels, provided that is not a material activity of
such company or entity and that such company or entity does not engage in
activities relating to additional Competitive Hotels, (iii) invests in debt or
debt securities, or (iv) is engaged in consulting, development, financing,
disposition or facility related services with respect to Competitive Hotels.
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Termination
The Advisory Agreement may be terminated for cause, by the mutual consent of
the parties, or by notice from the Company given at least 180 days prior to
the expiration of the term. The Advisor shall not be entitled to any
termination fees or penalties, but shall be entitled to receive all accrued
but unpaid compensation and expense reimbursement in cash within 30 days of
any termination date. The Advisor has the right to assign the Advisory
Agreement to an Affiliate subject to approval by the Independent Trustees of
the Company. The Company has the right to assign the Advisory Agreement to any
successor to all of its assets, rights and obligations.
Indemnification
The Company has agreed to indemnify and hold harmless the Advisor and its
partners, directors, officers, stockholders, agents and employees and each
other person or entity, if any, controlling the Advisor (an "Indemnified
Party"), to the full extent lawful, from and against any and all losses,
claims, damages or liabilities of any nature whatsoever with respect to or
arising from any acts or omission of the Advisor (including ordinary
negligence) in its capacity as such, except with respect to losses, claims,
damages or liabilities with respect to or arising out of the Advisor's gross
negligence, bad faith or willful misconduct and its affiliates and their
respective officers, directors, partners and employees from and against any
and all liabilities, claims, damages or losses in the performance of their
duties in good faith hereunder, and related expenses which shall include
reasonable attorney's fees, subject only to such limitations as may be imposed
on such indemnification by Maryland law.
CONFLICTS BETWEEN THE COMPANY AND THE ADVISOR
The interests of the Company and the Advisor potentially may conflict due to
the ongoing relationships between the two entities. Because the timing and
amount of incentive and other fees received by the Advisor may be affected by
various determinations, including the sale or disposition of properties, the
Advisor may have a conflict of interest with respect to such determinations.
In addition, LaSalle is a significant shareholder of the Company and could
influence decisions regarding the Advisory Agreement and fees relating to such
agreement. The failure of the Advisor or the Company to enforce the material
terms of the Advisory Agreement could result in a monetary loss to the
Company, which loss could have a material adverse effect on the Company's
financial condition or results of operations.
In addition, Messrs. Scott and Bortz serve as Trustees of the Company and
also serve as officers and directors of LaSalle and the Advisor. Messrs. Bortz
and Barnello also serve as officers of the Company. Messrs. Scott, Bortz and
Barnello, as well as certain other officers and Trustees of the Company and
directors of the Advisor, also own shares (and/or options or other rights to
acquire shares) in LaSalle, either directly or indirectly. With respect to the
various contractual arrangements between the two entities, the potential
exists for disagreement as to the quality of services provided by the Advisor
and as to contractual compliance. In addition, certain situations could arise
where actions taken by the Advisor in its capacity as manager or adviser of
the Excluded Properties would not necessarily be in the best interests of the
Company. Nevertheless, the Company believes that there is sufficient mutuality
of interest between the Company and the Advisor to result in a mutually
productive relationship.
Policies and Procedures for Addressing Conflicts
The Company has adopted certain policies designed to eliminate or minimize
potential conflicts of interest. The Company's Board of Trustees is subject to
certain provisions of Maryland law which are designed to eliminate or minimize
certain potential conflicts of interest. However, there can be no assurance
that these policies will always be successful in eliminating the influence of
such conflicts, and if they are not successful, decisions could be made that
might fail to reflect fully the interests of all shareholders.
With a view toward protecting the interests of the Company's shareholders,
the Bylaws of the Company provide that a majority of the Board of Trustees
(and a majority of each committee of the Board of Trustees) must not be
"affiliates" of the Advisor, as that term is defined in the Bylaws, and that
the investment policies of the Company must be reviewed annually by a majority
of these trustees. Moreover, the Company may terminate the Advisory Agreement
without termination fees or penalties upon notice given at least 180 days
prior to the expiration of the then current term of the Agreement and all
decisions regarding conflicts with the Advisor and termination of the Advisory
Agreement shall be made by vote of the independent trustees.
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The Company has adopted a policy that, without the approval of a majority of
the independent trustees, it will not (i) acquire from or sell to any trustee,
officer or employee of the Company or the Advisor, or any entity in which a
trustee, officer or employee of the Company beneficially owns more than a 1%
interest, or acquire from or sell to any affiliate of any of the foregoing,
any of the assets or other property of the Company, (ii) make any loan to or
borrow from any of the foregoing persons or (iii) engage in any other
transaction with any of the foregoing persons, including arrangements for
services beyond the scope of the Advisory Agreement.
Pursuant to Maryland law, each trustee will be subject to restrictions on
misappropriation of corporate opportunities to himself or his affiliates
learned of solely as a result of his service as a member of the Board of
Trustees of the Company. In addition, under Maryland law, a transaction
effected by the Company or any entity controlled by the Company in which a
trustee or certain related persons and entities of the trustees has a
conflicting interest, as defined thereunder, of such financial significance
that it would reasonably be expected to exert an influence on the trustee's
judgment may not be enjoined, set aside or give rise to damages on the grounds
of such interest if (a) the transaction is approved, after disclosure of the
interest, by the affirmative vote of a majority of the disinterested trustees,
or by the affirmative vote of a majority of the votes cast by disinterested
shareholders, or (b) the transaction is established to have been fair to the
Company.
TRUSTEES AND OFFICERS OF THE COMPANY, THE ADVISOR AND RELEVANT AFFILIATES
Board of Trustees and Committees
The Company will be managed by a seven member Board of Trustees, a majority
of whom will be independent trustees. The four independent trustee nominees
will become trustees of the Company immediately after the completion of the
Offering. The Board of Trustees will initially have an Audit Committee, a
Compensation Committee and an Investment Committee.
Audit Committee. Promptly following the completion of the Offering, the
Board of Trustees will establish an Audit Committee that will consist entirely
of independent trustees. The Audit Committee will make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider the
range of audit and non-audit fees, and review the adequacy of the Company's
and Advisor's internal accounting controls.
Compensation Committee. The Board of Trustees will establish a Compensation
Committee to annually review the performance of the Advisor under the Advisory
Agreement, evaluate and determine the appropriateness of the compensation
arrangement of the Advisor at the time of the renewal of the Advisory
Agreement, determine the appropriateness of the renewal of the Advisory
Agreement and administer the Share Option Plan. The members of the
Compensation Committee will consist entirely of Independent Trustees.
Investment Committee. The Board of Trustees will establish an Investment
Committee to meet, as required, to review investments submitted by the Advisor
for recommendation to the Board, and to approve investments within certain
parameters as delegated to the Investment Committee by the Board.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated
by the Board of Trustees.
Compensation of Trustees
Each trustee who is not an employee of LaSalle will be paid an annual fee of
$20,000. In addition, each such trustee will be paid $1,000 for attendance at
each meeting of the Company's Board of Trustees and $500 for attendance at
each meeting of a committee of the Company's Board (at a time other than a
Board meeting) of which such trustee is a member. In the event that special
telephonic board meetings are held, a fee of $500 shall be payable for such
meetings. The annual retainer fee will be paid to such trustees 50% in cash
and 50% in
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shares of Common Stock. Meeting fees will be paid in cash. Each trustee may
elect to receive, in lieu of the cash portion of the annual retainer,
compensation in the form of grants of Common Shares. No other trustees will
receive trustees' fees.
In addition, the Company will reimburse trustees for their out-of-pocket
expenses incurred in connection with their service on the Board of Trustees.
In addition, each trustee who is not an employee of LaSalle elected to the
Board of Trustees for the first time will receive upon such election an
initial grant of options to purchase 5,000 Common Shares at fair market value
on the date of grant. In addition, each trustee who is not an employee of
LaSalle will receive an annual grant of options to purchase 1,000 Common
Shares for each year during such trustee's term. Any trustee who ceases to be
a trustee will forfeit the right to receive any options not previously vested.
Trustees and Executive Officers
Upon the effective date of this Prospectus, the Board of Trustees will
consist of seven members, each of whom has been nominated for election and has
consented to serve, four of whom will be independent trustees. The Board of
Trustees will be divided into three classes serving staggered three year
terms. Initially, the Company will have two executive officers, Messrs. Bortz
and Barnello, who will be compensated by the Advisor and will receive no
separate compensation from the Company. Certain information regarding the
trustees and executive officers of the Company is set forth below.
<TABLE>
<CAPTION>
CLASS/TERM
NAME POSITION AGE EXPIRATION
---- -------- --- --------------
<S> <C> <C> <C>
Stuart L. Scott......... Chairman of the Board of Trustees 59 Class III/2001
Jon E. Bortz............ President, Chief Executive Officer and
Trustee 41 Class I/1999
Michael D. Barnello..... Chief Operating Officer and Senior Vice 32
President of Acquisitions
Darryl Hartley-Leonard.. Trustee Nominee 52 Class II/2000
George F. Little, II.... Independent Trustee Nominee 48 Class III/2001
Donald S. Perkins....... Independent Trustee Nominee 71 Class III/2001
Shimon Topor............ Independent Trustee Nominee 54 Class II/2000
Donald A. Washburn...... Independent Trustee Nominee 53 Class I/1999
</TABLE>
Stuart L. Scott. Mr. Scott has been Chairman of the Board of Trustees of the
Company since its formation, a member of the Board of the Advisor since its
incorporation and Chairman of the Board of Directors and Chief Executive
Officer of LaSalle and its predecessor entities since December 1992. Mr. Scott
is not an executive officer of the Company and will devote substantially all
of his time and efforts to other activities of LaSalle. Prior to December
1992, Mr. Scott was President of LaSalle's predecessor entities for more than
15 years and Co-Chairman of its Management Committee from January 1990 to
December 1992. Mr. Scott originally joined LaSalle in 1973. Mr. Scott is a
member of the Board of Directors of Hartmarx Corporation, a clothing
manufacturing company. Mr. Scott holds a B.A. from Hamilton College and a J.D.
from Northwestern University.
Jon E. Bortz. Mr. Bortz has been President, Chief Executive Officer and a
Trustee of the Company since its formation, and Chairman of the Board and
Chief Executive Officer of the Advisor since its incorporation. Mr. Bortz
founded LaSalle's Hotel Group in 1993, and as President, has overseen all of
LaSalle's hotel investment and development activities. Mr. Bortz will devote
substantially all of his time and efforts to the activities of the Company.
From January 1995 as Managing Director of LaSalle's Investment Advisory
Division, Mr. Bortz has also been responsible for certain east coast
development projects, including the redevelopment of Grand Central Terminal in
New York City. From January 1990 to January 1995, he was a Senior Vice
President of LaSalle's Investment Division, with responsibility for east coast
development projects and workouts. Mr. Bortz originally joined LaSalle in
1981. He is a member of the Board of Directors of LaSalle Advisors Capital
Management, Inc. and LaSalle Co-Investment, Inc., both subsidiaries of LaSalle
Partners Incorporated. Mr. Bortz holds a B.S. in Economics from The Wharton
School of the University of Pennsylvania and became a Certified Public
Accountant in Maryland in 1979.
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Michael D. Barnello. Mr. Barnello has been Chief Operating Officer and
Senior Vice President of Acquisitions of the Company since its formation, and
President and Chief Operating Officer of the Advisor responsible for hotel
acquisitions and advisory activities. Mr. Barnello will devote substantially
all of his time and efforts to the activities of the Company. Mr. Barnello
joined LaSalle Partners in April 1995 as a Vice President. Prior to April
1995, Mr. Barnello was a Vice President with Strategic Realty Advisors,
formerly known as VMS Realty Partners, where he was responsible for hotel
asset management since 1990. Concurrently, Mr. Barnello was a Vice President
at Stone-Levy LLC, an affiliate of Strategic Realty Partners, where he was
responsible for hotel acquisitions. Mr. Barnello holds a B.S. in Hotel
Administration from the Cornell School of Hotel Administration.
Darryl Hartley-Leonard. Mr. Hartley-Leonard is a private investor. Mr.
Hartley-Leonard is Chairman and CEO of PGI, an event production agency,
Chairman and Partner of Metropolitan Hotel Corporation, a hotel company in the
long term stay/suite hotel business directed at the upscale market, a founding
partner of H-LK Partners, a hotel development and management company and
Chairman and Partner of Cohabaco Cigar Co., a nationwide cigar distribution
company. Mr. Hartley-Leonard formerly worked for Hyatt Hotels Corporation
("Hyatt") for 32 years. From 1994 to 1996 he served as Chairman of the Board
of Directors of Hyatt and from 1986 to 1994, he served as President and Chief
Executive Officer/Chief Operating Office of Hyatt. Mr. Hartley-Leonard also
serves on the Board of Directors of LaSalle Partners, a worldwide real estate
investment and services company, The United States Committee for UNICEF and
Evanston Northwestern Healthcare. Mr. Hartley-Leonard holds a B.A. from
Blackpool Lancashire College of Lancaster University and an honorary doctorate
of business administration from Johnson and Wales University.
George F. Little, II. Mr. Little has worked for George Little Management,
Inc. ("GLM") since 1971. Currently he serves as the President and Chief
Operating Officer of GLM, a privately owned trade show management company.
Prior to that he served as Executive Vice President (1989 to 1992) and Vice
President (1983 to 1989) of GLM. Mr. Little is a member of the New York State
and National Chapters of the International Association of Exposition Managers,
Society of Independent Show Organizers and currently serves on the Board of
Trustees of Hamilton College and The Taft School. Mr. Little formerly was a
member of the Finance Committee of The Town School Board of Trustees and the
Chairman of the Finance Committee of All Souls Unitarian Church. Mr. Little
holds a B.A. from Hamilton College.
Donald S. Perkins. Mr. Perkins is the former Chairman of the Board of
Directors of Jewel Companies, Inc. ("Jewel"). From 1970 to 1983 Mr. Perkins
was the Chairman and Chief Executive Officer of Jewel. Prior to that he served
as President (1965 to 1970), Executive Vice President (1963 to 1965) and Vice
President (1960 to 1965) of Jewel. Prior to joining Jewel in 1953 Mr. Perkins
served in the U.S. Merchant Marine and the United States Air Force. Mr.
Perkins currently serves on the Board of Directors of the AON Corporation,
Cummins Engine Company, Current Assets, LaSalle Street Fund, LaSalle U.S.
Realty Income and Growth Fund Inc., Lucent Technologies Inc., The Putnam
Funds, Ryerson Tull, Inc., Springs Industries, Inc. and Time Warner
Incorporated. Mr. Perkins is an Honorary Trustee of the Brookings Institution
and a Trustee and Vice Chairman of Northwestern University, Honorary Chairman
of The Illinois Coalition and Protector of the Thyssen-Bornemiaza Continuity
Trust. Mr. Perkins is also a member of the Business Council, the Civic
Committee of The Commercial Club of Chicago, a Director of the Golden Apple
Foundation, Leadership for Quality Education and a member of the SpencerStuart
Advisory Board. Mr. Perkins graduated from Yale University and Harvard
Business School.
Shimon Topor. Mr. Topor is General Partner of Steinhardt Partners, L.P. and
Managing Member of Steinhardt Management, LLC. Mr. Topor has been with the
Steinhardt organization since 1983 and is responsible for the firm's corporate
and real estate investments. Mr. Topor also serves as the Chairman of the
Board of Maritime Bank of Israel. Prior to joining the Steinhardt
organization, Mr. Topor held senior executive positions with the Bank Hapoalim
Group and was Chairman and Chief Executive Officer of Israel Continental Bank,
a commercial bank jointly owned by Bank Hapoalim and BFG of Germany. Mr. Topor
had acted as Senior Vice President of Ampal American Israel Corporation, an
investment company listed on the American Stock Exchange. Mr. Topor served on
the Board of Directors of Sunbeam Corporation. Mr. Topor is a graduate of
Hebrew University Law School.
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Donald A. Washburn. Mr. Washburn is the Executive Vice President-Flight
Operations and President-Northwest Cargo Northwest Airlines, Inc.
("Northwest"). Mr. Washburn joined Northwest in 1990 and served in a number of
capacities, including Executive Vice President-Customer Service and
Operations. Prior to joining Northwest, Mr. Washburn was employed by Marriott,
Quaker Oats Co. and Inland Steel Co. Mr. Washburn is a member of the Board of
Directors of Princess House, Inc. and the Childrens' Cancer Research Fund.
Mr. Washburn is also a member of the Kellogg Graduate School of Management
Alumni Advisory Board and the President's Visiting Committee of the
Northwestern University School of Law. Mr. Washburn graduated from Loyola
University of Chicago, J.L. Kellogg Graduate School of Management at
Northwestern University and the Northwestern University School of Law.
SHARE OPTION AND INCENTIVE PLAN
Prior to the Offering, the Board of Trustees will adopt, and the
shareholders will approve the 1998 Share Option and Incentive Plan (the "Share
Option Plan"). On and after the closing of the Offering, the Share Option Plan
will be administered by the Compensation Committee of the Board of Trustees.
The Advisor and its employees and operators of the Company's hotels and their
employees generally will be eligible to participate in the Share Option Plan.
Independent Trustees are eligible to receive options to purchase Common Shares
under the Share Option Plan on a limited basis. See "--Compensation of
Trustees."
The following summary of the Share Option Plan is qualified in its entirety
by reference to the full text of the Share Option Plan, a copy of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
The Share Option Plan authorizes (i) the grant of options to purchase Common
Shares that qualify as incentive options under Section 422 of the Code
("ISOs"), (ii) the grant of options to purchase Common Shares that do not so
qualify ("NQSOs"), (iii) the grant of options to purchase Common Shares in
lieu of cash Trustees' fees, (iv) grants of Common Shares in lieu of cash
compensation and (v) the making of loans to acquire Common Shares in lieu of
compensation. The exercise price of options to purchase Common Shares will be
determined by the Compensation Committee, but may not be less than 100% of the
fair market value of the Common Shares on the date of grant in the case of
ISOs; provided that, in the case of grants of NQSOs granted in lieu of cash
Trustees' fees, the exercise price may not be less than 50% of the fair market
value of the Common Shares of Common Stock on the date of grant. The Company
has reserved 757,000 Common Shares for issuance under the Share Option Plan.
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STRUCTURE AND FORMATION OF THE COMPANY
The following Formation Transactions have occurred or will occur prior to or
contemporaneously with the closing of the Offering:
. The Company was formed as a Maryland real estate investment trust on
January 15, 1998.
. The Operating Partnership was formed as a Delaware limited partnership
on January 13, 1998.
. The Advisor was formed as a Maryland corporation on January 23, 1998.
. The partnerships owning three of the Initial Hotels (Radisson Tampa East
Hotel, Holiday Inn Plaza Park and Le Montrose All Suite Hotel De Gran
Luxe) entered into the Bridge Loan on January 30, 1998 pursuant to which
the three partnerships borrowed an aggregate of $48.0 million, the
proceeds of which were used to purchase the interest of Cargill in those
three Initial Hotels and to repay outstanding mortgage and other
indebtedness on such Initial Hotels and certain expenses in connection
therewith. Amounts outstanding under the Bridge Loan will be repaid with
a portion of the net proceeds from the Offering.
. The Company will use a portion of the estimated net proceeds of the
Offering to repay an affiliate of Prudential Securities Incorporated the
$48.0 million outstanding under the Bridge Loan.
. The Company will sell 14,200,000 Common Shares in the Offering.
Approximately $264.1 million of the estimated net proceeds to the
Company from the Offering, 912,122 Common Shares and rights to purchase
823,223 Common Shares will be contributed to the Operating Partnership
in exchange for an approximately 82.6% equity interest in the Operating
Partnership (which will be accounted for as a purchase transaction). The
Company will be the sole general partner of the Operating Partnership.
. Each of the Initial Hotels, excluding the LaGuardia Airport Marriott, is
owned by one or more Contributors consisting of: LaSalle, Steinhardt,
Cargill, Radisson, OLS and Durbin. Pursuant to Contribution Agreements
entered into in January 1998, the Operating Partnership will acquire a
100% interest in each of the Initial Hotels excluding the LaGuardia
Airport Marriott, (which will be accounted for as a purchase
transaction), for an aggregate of 3,181,723 Units, 912,122 Common
Shares, rights to purchase 823,223 Common Shares, approximately $47.2
million in cash and the repayment of approximately $202.3 million of
outstanding mortgage and other indebtedness on such Initial Hotels
(including the $48.0 million outstanding under the Bridge Loan) and
certain expenses in connection therewith.
. Contemporaneously with the completion of the Offering, or shortly
thereafter, the Company will acquire the LaGuardia Airport Marriott
(which will be accounted for as a purchase transaction) for
approximately $45.5 million.
. LaSalle will form the Affiliated Lessee, to serve as lessee for the
three Initial Hotels for which the Operator has declined on account of
internal policy reasons to serve as lessee. The Affiliated Lessee will
be owned as follows: 9.0% by the Company, 45.5% by LaSalle and 45.5% by
LPI Charities, a charitable corporation organized under the laws of the
State of Illinois. The Affiliated Lessee has not entered into and will
not enter into any leases of hotel properties except leases for hotels
owned by the Company.
. The Operating Partnership will lease the Initial Hotels to the Lessees
for terms of between six and 11 years pursuant to separate Participating
Leases, which provide for rent equal to the greater of Base Rent or
Participating Rent. The Lessees will contract with the Operators to
operate the Initial Hotels under separate Operator Agreements providing,
with respect to seven of the Initial Hotels, for the subordination of
the payment of all management fees to the Lessees' obligations to pay
rent to the Operating Partnership. Each of the Lessees has not entered
into and will not enter into any leases of hotel properties except
leases for hotels owned by the Company.
. As a result of the foregoing transactions, LaSalle will own 912,122
Common Shares, and the public shareholders will own 14,200,000 Common
Shares, respectively, representing approximately a 5.0% and a 77.6%
economic interest, respectively, in the Company. The Company will own
15,112,122 Units representing approximately an 82.6% economic interest
in the Operating Partnership. Additionally, LaSalle and the other
Contributors will own 1,016,361 and 2,165,362 Units, respectively,
representing an approximately 5.6% and 11.8% economic interest,
respectively, in the Operating Partnership.
. The Company will enter into the unsecured $200 million Line of Credit
and initially borrow approximately $40.3 million thereunder.
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. Upon consummation of the Offering, the Advisor will receive options to
acquire 457,346 Common Shares or, at the election of the Company, Units,
as a structuring fee incurred in connection with the promotion and
formation of the Company, and the consummation of the Formation
Transactions, the Offering and Line of Credit.
BENEFITS TO RELATED PARTIES
As a result of the Formation Transactions, LaSalle, the Advisor, the
Contributors, certain trustees and Prudential Securities Incorporated will
receive the following benefits:
. The Advisor will enter into the Advisory Agreement pursuant to which the
Advisor will receive annual base and incentive fees based upon the
performance of the Company. See "REIT Management--Advisory Agreement."
. The Advisor will have the right to appoint two members of the initial
Board of Trustees of the Company.
. The Advisor will receive options to acquire 457,346 Common Shares, or at
the election of the Company, Units.
. LaSalle will own a 45.5% interest in the Affiliated Lessee.
. In connection with the acquisition of Radisson Tampa East Hotel, Holiday
Inn Plaza Park, Le Montrose All Suite Hotel De Gran Luxe and LaGuardia
Airport Marriott, LaSalle will receive brokerage commissions and
acquisition fees of approximately $0.6 million in the aggregate.
. The Operating Partnership will acquire interests with an aggregate book
value of $8.9 million in the Initial Hotels (excluding LaGuardia Airport
Marriott) from LaSalle in exchange for 1,016,361 Units valued at
approximately $20.3 million and 912,122 Common Shares valued at
approximately $18.2 million, representing aggregate consideration of
$38.5 million.
. The Operating Partnership will acquire interests with an aggregate book
value of $27.5 million in six of the Initial Hotels (excluding LaGuardia
Airport Marriott) from Steinhardt in exchange for 1,565,983 Units valued
at approximately $31.3 million, rights to purchase 662,237 Common Shares
at the initial public offering price per share, the right to appoint one
member of the initial Board of Trustees of the Company and $19.1 million
in cash, representing aggregate consideration of $50.4 million.
. The Operating Partnership will acquire interests with an aggregate book
value of $32.3 million in five of the Initial Hotels (excluding
LaGuardia Airport Marriott) from Cargill in exchange for 180,636 Units
valued at approximately $3.6 million, rights to purchase 160,986 Common
Shares at the initial public offering price per share and $28.1 million
in cash, representing aggregate consideration of $31.7 million.
. The Operating Partnership will acquire interests with an aggregate book
value of $0.5 million in two of the Initial Hotels from OLS, the
Operator and partial owner of such hotels, in exchange for 78,350 Units
valued at approximately $1.6 million.
. The Operating Partnership will acquire interests with a book value of
$1.6 million in one of the Initial Hotels from Radisson, the Operator
and partial owner of such hotel, in exchange for 332,893 Units valued at
approximately $6.7 million.
. The Operating Partnership will acquire interests with a book value of
$0.1 million in one of the Initial Hotels from Durbin, the Operator and
partial owner of such hotel, in exchange for 7,500 Units valued at
approximately $0.2 million.
. As a result of the foregoing transactions, LaSalle will own 912,122
Common Shares, and the public shareholders will own 14,200,000 Common
Shares, respectively, representing approximately a 5.0% and a 77.6%
economic interest, respectively, in the Company. Additionally, the
Company will own 15,112,122 Units of the Operating Partnership, and
LaSalle and the other Contributors will collectively own 3,181,723 Units
representing an 82.6% and 17.4% economic interest, respectively, in the
Operating Partnership.
. Certain tax consequences to the Contributors from the conveyance of
their interests in the Initial Hotels to the Operating Partnership will
be deferred.
. Contributors receiving Units and/or rights to purchase Common Shares,
and the Advisor which is receiving Common Shares or, at the election of
the Company, Units in the Formation Transactions will have registration
rights with respect to Common Shares issued in exchange for Units or
upon exercise of such rights or options.
. An affiliate of Prudential Securities Incorporated will receive a
portion of the net proceeds from the Offering in repayment of the $48.0
million outstanding under the Bridge Loan.
. Each non-employee trustee of the Company will receive options to acquire
5,000 Common Shares.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's policies with respect to
investment, financing, conflict of interest and certain other activities. The
policies with respect to these activities have been determined by the Board of
Trustees of the Company and may be amended or revised from time to time at the
discretion of the Board of Trustees without a vote of the shareholders of the
Company, except that (i) changes in certain policies with respect to conflicts
of interest must be consistent with legal requirements, (ii) certain policies
with respect to competition are imposed pursuant to contracts that cannot be
amended without the consent of all parties thereto and (iii) the Company
cannot take any action intended to terminate its qualification as a REIT
without the approval of the holders of a majority of the outstanding Common
Shares. There can be no assurance that the Company will be able to acquire
interests in hotels that meet its investment criteria.
INVESTMENT POLICIES
The Company will conduct all of its investment activities through the
Operating Partnership and its subsidiaries. The Company's investment
objectives are to (i) preserve and protect the Company's capital, (ii) provide
quarterly distributions to its shareholders and (iii) provide a benefit from
potential appreciation in value of the Initial Hotels and any acquired or
developed hotels, payable upon the sale or refinancing of the Initial Hotels
or the additional hotels. There can be no assurance that the investment
objectives described above will actually be attained.
While the Company's current portfolio consists of, and the Company's
business objectives emphasize, investments in hotels, in the discretion of the
Board of Trustees, the Company may invest in real estate related equity
securities and other real estate interests and properties. Future development
or investment activities will not be limited to any geographic area or product
type or to a specified percentage of the Company's assets. The Company does
not intend to adopt a diversification policy with respect to property
locations, size and market, and in this respect the Company does not have any
limit on the amount or percentage of its assets that may be invested in any
one property or any one market area.
Subject to the percentage ownership limitations and gross income tests
necessary for REIT qualification, the Company also may invest in securities of
other REITs, other entities engaged in real estate activities or securities of
other issuers, including for the purpose of exercising control over such
entities. See "Federal Income Tax Consequences." The Company may enter into
joint ventures or partnerships for the purpose of obtaining an interest in a
particular property or properties in accordance with the Company's investment
policies. Such investments may permit the Company to own interests in larger
assets without unduly restricting diversification and, therefore, add
flexibility in structuring its portfolio. The Company will not enter into a
joint venture or partnership to make an investment that would not otherwise
meet its investment policies. Investments in such securities are also subject
to the Company's policy not to be treated as an investment company under the
Investment Company Act.
FINANCING
The Operating Partnership initially will acquire the interests in the
Initial Hotels. Thereafter, the Company intends to make additional investments
in hotel properties and may incur or cause the Operating Partnership to incur
indebtedness to make such investments or to meet the distribution requirements
imposed by the REIT provisions of the Code, to the extent that cash flow from
the Company's investments and working capital is insufficient.
To ensure that the Company has sufficient liquidity to conduct its
operations, including making investments in additional hotel properties,
renovations and expansions of the Initial Hotels and funding its anticipated
distribution obligations and financing costs, the Company has received a
commitment from the Banks for a $200 million unsecured Line of Credit to be
entered into concurrently with the completion of the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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Subject to the terms of the Line of Credit, additional borrowings may be
incurred through the Operating Partnership or the Company. Indebtedness
incurred by the Company may be in the form of bank borrowings, secured and
unsecured, and publicly and privately placed debt instruments. Indebtedness
incurred by the Operating Partnership may be in the form of purchase money
obligations to the sellers of properties, publicly or privately placed debt
instruments, financing from banks, institutional investors or other lenders,
any of which indebtedness may be unsecured or may be secured by mortgages or
other interests in the property owned by the Operating Partnership. Such
indebtedness may be recourse to all or any part of the property of the Company
or the Operating Partnership, or may be limited to the particular property to
which the indebtedness relates. The proceeds from any borrowings by the
Company or the Operating Partnership may be used for the payment of
distributions or dividends, working capital, to refinance existing
indebtedness or to finance acquisitions or expansions of properties. See
"Federal Income Tax Considerations--Requirements for Qualification--
Distribution Requirements."
If the Board of Trustees determines to raise additional equity capital, the
Board has the authority, without shareholder approval, to issue additional
Common Shares, preferred shares or other capital shares of the Company in any
manner (and on such terms and for such consideration) as it deems appropriate,
including in exchange for property. Existing shareholders have no preemptive
right to purchase shares issued in any offering, and any such offering might
cause a dilution of a shareholder's investment in the Company.
The Company may make investments other than as previously described,
although it does not currently intend to do so.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The Company has adopted certain policies designed to eliminate or minimize
potential conflicts of interest. The Company's Board of Trustees is subject to
certain provisions of Maryland law which are designed to eliminate or minimize
certain potential conflicts of interest. However, there can be no assurance
that these policies always will be successful in eliminating the influence of
such conflicts, and if they are not successful, decisions could be made that
might fail to reflect fully the interests of all shareholders.
With a view toward protecting the interests of the Company's shareholders,
the Bylaws of the Company provide that a majority of the Board of Trustees
(and a majority of each committee of the Board of Trustees) must not be
"affiliates" of the Advisor, as that term is defined in the Bylaws, and that
the investment policies of the Company must be reviewed annually by a majority
of these independent trustees. Moreover, the Company may terminate the
Advisory Agreement upon notice given at least 180 days prior to the expiration
of the then current term of the agreement without termination fees or
penalties and all decisions regarding conflicts with the Advisor and
termination of the Advisory Agreement shall be made by vote of the Independent
Trustees.
The Company has adopted a policy that, without the approval of a majority of
the independent trustees, it will not (i) acquire from or sell to LaSalle or
the Advisor or any trustee, officer or employee of the Company or the Advisor,
or any entity in which a trustee, officer or employee of the Company
beneficially owns more than a 1% interest, or acquire from or sell to any
affiliate of any of the foregoing, any of the assets or other property of the
Company, (ii) make any loan to or borrow from any of the foregoing persons or
(iii) engage in any other transaction with any of the foregoing persons,
including arrangements for services beyond the scope of the Advisory
Agreement.
Pursuant to Maryland law, each trustee will be subject to restrictions on
misappropriation of corporate opportunities to himself or his affiliates
learned of solely as a result of his service as a member of the Board of
Trustees of the Company. In addition, under Maryland law, a transaction
effected by the Company or any entity controlled by the Company in which a
trustee or certain related persons and entities of the trustee has a
conflicting interest, as defined thereunder, of such financial significance
that it would reasonably be expected to exert an influence on the trustee's
judgment may not be enjoined, set aside or give rise to damages on the grounds
of such interest if (a) the transaction is approved, after disclosure of the
interest, by the affirmative vote
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of a majority of the disinterested trustees, or by the affirmative vote of a
majority of the votes cast by disinterested shareholders, or (b) the
transaction is established to have been fair to the Company.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer its capital shares or other securities
and to repurchase or otherwise reacquire its shares or any other securities
and may engage in such activities in the future. As described under "The
Operating Partnership Agreement--Redemption Rights," the Company expects to
issue Common Shares to holders of limited partnership interests in the
Operating Partnership upon exercise of their Redemption Rights. Except in
connection with the formation of the Company, the Company has not issued
Common Shares, interests or any other securities to date. The Company has no
outstanding loans to other entities or persons, including its officers and
trustees. The Company in the future may make loans to joint ventures and
partnerships in which it participates in order to meet working capital needs.
The Company has not engaged in trading, underwriting or agency distribution or
sale of securities of other issuers, nor has the Company invested in the
securities of other issuers other than the Operating Partnership for the
purpose of exercising control. The Company intends to make investments in a
manner such that it will not be treated as an investment company under the
Investment Company Act.
At all times, the Company intends to make investments in a manner consistent
with the requirements of the Code for the Company to qualify as a REIT unless,
because of changing circumstances or changes in the Code (or in Treasury
Regulations), the Company's Board of Trustees, with the consent of a majority
of the shareholders, determines that it is no longer in the best interests of
the Company to qualify as a REIT.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
In addition to the transactions with affiliates described elsewhere in this
Prospectus, the Company has entered into the following transactions (which the
Company believes to be as beneficial to the Company as they would be with
unrelated third parties):
ADVISORY AGREEMENT
Pursuant to the Advisory Agreement, the Advisor will assume the day-to-day
management of the Company. The Advisor is wholly-owned by LaSalle, which will
beneficially own approximately 6.0% of the Common Shares. The Advisor's sole
business and principal occupation since its formation in January 1998 is
advising the Company. The services provided or coordinated by the Advisor
include acquisition, management, advisory and administrative services. All
such services are included in the based and incentive fees payable to the
Advisor under the terms of the Advisory Agreement. The annual base fee will be
paid quarterly and will not exceed 5% of the Company's NOI. See "REIT
Management--REIT Advisory Agreement." In addition to the fees payable to the
Advisor under the Advisory Agreement, the Company may retain affiliates of the
Advisor to provide services beyond the scope of the Advisory Agreement. Should
the Company retain an affiliate of the Advisor, the Company will pay fair
market compensation for such services and the terms, conditions and pricing of
these services will be subject to approval by a majority of the Independent
Trustees of the Company.
THE AFFILIATED LESSEE
Three of the Initial Hotels will be leased to the Affiliated Lessee. LaSalle
will have a 45.5% ownership interest in the Affiliated Lessee.
RELATIONSHIPS AMONG OFFICERS, TRUSTEES AND CONTRIBUTORS
Messrs. Scott and Bortz serve as Trustees of the Company and also serve as
officers and directors of LaSalle and the Advisor. Messrs. Bortz and Barnello
(who is also an officer and director of the Advisor) also serve as officers of
the Company. Messrs. Scott, Bortz and Barnello, as well as certain other
officers and Trustees of the Company and directors of the Advisor, also own
shares (and/or options or other rights to acquire shares) in LaSalle, either
directly or indirectly. In addition, the Advisor has the right to appoint two
members of the initial Board of Trustees of the Company and Steinhardt has the
right to appoint one member of the initial Board of Trustees.
ACQUISITION OF INTERESTS IN THE INITIAL HOTELS
One or more of Messrs. Scott, Bortz and Barnello own equity interests in
certain entities which own interests in certain of the Contributors
contributing their interests in the Initial Hotels to the Company in exchange
for Common Shares and Units. The Contributors will receive the benefits listed
in "Structure and Formation of the Company--Benefits to Related Parties " in
consideration for the contributions of their interests in the Initial Hotels.
THE PARTICIPATING LEASES
The Company, the Affiliated Lessee and the Independent Lessees have entered
into the Participating Leases, with terms from six to 11 years. See "The
Initial Hotels--The Participating Leases." Pursuant to the terms of the
Participating Leases, the Lessee is required to pay the greater of Base Rent
or Percentage Rent and certain other additional charges and is entitled to all
profits from the operation of the Hotels after the payment of operating and
other expenses. See "Selected Financial Information."
THE OPERATOR AGREEMENTS
The Affiliated Lessee and the Independent Lessees entered into the Operator
Agreements, with terms from six to 11 years, relating to the management of the
Initial Hotels. Pursuant to the Operator Agreements, each Operator is entitled
to receive a management fee, based on the gross revenues of the applicable
hotel. The payment of management fees to the Operators by the Lessees (except
with respect to the Initial Hotels leased by the Affiliated Lessee) is
subordinate to the Lessee's obligations to the Company under the Participating
Leases. See "The Initial Hotels--The Operator Agreements."
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PARTNERSHIP AGREEMENT
The following summary of the Agreement of Limited Partnership of the
Operating Partnership (the "Partnership Agreement"), including the
descriptions of certain provisions set forth elsewhere in this Prospectus, is
qualified by reference to the Partnership Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
OPERATIONAL MATTERS
General. Holders of Units (other than the Company in its capacity as general
partner) will hold a limited partnership interest in the Operating
Partnership, and all holders of Units (including the Company in its capacity
as general partner) will be entitled to share in cash distributions from, and
in the profits and losses of, the Operating Partnership. Each Unit generally
will receive distributions in the same amount paid on each Common Share. See
"Distributions."
Holders of Units will have the rights to which limited partners are entitled
under the Partnership Agreement and, to the extent not limited by the
Partnership Agreement, the Delaware Revised Uniform Limited Partnership Act
(the "Act"). The Units have not been and are not expected to be registered
pursuant to any Federal or state securities laws or listed on any exchange or
quoted on any national market system. The Partnership Agreement imposes
certain restrictions on the transfer of Units, as described below.
Purposes, Business and Management. The purpose of the Operating Partnership
includes the conduct of any business that may be lawfully conducted by a
limited partnership formed under the Act, except that the Partnership
Agreement requires the business of the Operating Partnership to be conducted
in such a manner that will permit the Company to be classified as a REIT under
Section 856 of the Code, unless the Company ceases to qualify as a REIT for
reasons other than the conduct of the business of the Operating Partnership.
Subject to the foregoing limitation, the Operating Partnership may enter into
partnerships, joint ventures or similar arrangements and may own interests
directly or indirectly in any other entity.
The Company, as the general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership
by virtue of being a holder of Units.
The Company may not conduct any business other than the business of the
Operating Partnership without the consent of the holders of a majority of the
limited partnership interests (not including the limited partnership interests
held by the Company in its capacity as a limited partner in the Operating
Partnership).
Distributions. The Partnership Agreement provides for the quarterly
distribution of Available Cash (as defined herein), as determined in the
manner provided in the Partnership Agreement, to the Company and the limited
partners in proportion to their percentage interests in the Operating
Partnership. "Available Cash" is generally defined as net income plus any
reduction in reserves and minus interest and principal payments on debt,
capital expenditures, any additions to reserves and other adjustments. Neither
the Company nor the limited partners are entitled to any preferential or
disproportionate distributions of Available Cash.
Borrowing by the Operating Partnership. The Company is authorized to cause
the Operating Partnership to borrow money and to issue and guarantee debt as
it deems necessary for the conduct of the activities of the Operating
Partnership. Such debt may be secured by mortgages, deeds of trust, liens or
encumbrances on properties of the Operating Partnership. The Company also may
cause the Operating Partnership to borrow money to enable the Operating
Partnership to make distributions, including distributions in an amount
sufficient to permit the Company, as long as it qualifies as a REIT, to avoid
the payment of any Federal income tax. See "Policies with Respect to Certain
Activities--Financing Policies."
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Reimbursement of the Company; Transactions with the Company and its
Affiliates. The Company will not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a
partner in the Operating Partnership, has the same right to allocations and
distributions as other partners in the Operating Partnership. In addition, the
Operating Partnership will reimburse the Company for substantially all
expenses it incurs relating to the ongoing operation of the Company and
offerings of Units or Common Shares (or rights, options, warrants or
convertible or exchangeable securities).
Except as expressly permitted by the Partnership Agreement, affiliates of
the Company will not engage in any transactions with the Operating Partnership
except on terms that are fair and reasonable and no less favorable to the
Operating Partnership than would be obtained from an unaffiliated third party.
Sales of Assets. Under the Partnership Agreement, the Company generally has
the exclusive authority to determine whether, when and on what terms the
assets of the Operating Partnership (including the Properties) will be sold. A
sale of all or substantially all of the assets of the Operating Partnership
(or a merger of the Operating Partnership with another entity) generally
requires an affirmative vote of the holders of a majority of the outstanding
Units (including Units held by the Company).
No Removal of the General Partner. The Partnership Agreement provides that
the limited partners may not remove the Company as general partner of the
Operating Partnership with or without cause (unless neither the General
Partner nor its parent entity is a "public company," in which case the General
Partner may be removed for cause).
Issuance of Limited Partnership Interests. The Company is authorized,
without the consent of the limited partners, to cause the Operating
Partnership to issue Units to the Company, to the limited partners or to other
persons for such consideration and upon such terms and conditions as the
Company deems appropriate. The Operating Partnership also may issue
partnership interests in different series or classes, which may be senior to
the Units. If Units are issued to the Company, then the Company must issue
Common Shares and must contribute to the Operating Partnership the proceeds or
other consideration received by the Company from such issuance. In addition,
the Company may cause the Operating Partnership to issue to the Company
partnership interests in different series or classes of equity securities,
which may be senior to the Units, in connection with an offering of securities
of the Company having substantially similar rights upon the contribution of
the proceeds therefrom to the Operating Partnership. Consideration for
partnership interests may be cash or any property or other assets permitted by
the Act. No limited partner has preemptive, preferential or similar rights
with respect to capital contributions to the Operating Partnership or the
issuance or sale of any partnership interests therein.
Amendment of the Partnership Agreement. Generally, the Partnership Agreement
may be amended with the approval of the Company, as general partner, and
limited partners (including the Company) holding a majority of the Units.
Certain provisions regarding, among other things, the rights and duties of the
Company as general partner or the dissolution of the Operating Partnership,
may not be amended without the approval of a majority of the Units not held by
the Company. Notwithstanding the foregoing, the Company, as general partner,
has the power, without the consent of the limited partners, to amend the
Partnership Agreement in certain circumstances. Certain amendments that would
affect the fundamental rights of a limited partner must be approved by the
Company and each limited partner that would be adversely affected by such
amendment.
Dissolution, Winding Up and Termination. The Operating Partnership will
continue until December 31, 2095, unless sooner dissolved and terminated. The
Operating Partnership will be dissolved prior to the expiration of its term,
and its affairs wound up upon the occurrence of the earliest of: (i) the
withdrawal of the Company as general partner without the permitted transfer of
the Company's interest to a successor general partner (except in certain
limited circumstances); (ii) the sale of all or substantially all of the
Operating Partnership's assets and properties; (iii) the entry of a decree of
judicial dissolution of the Operating Partnership pursuant to the provisions
of the Act; (iv) the entry of a final non-appealable order for relief in a
bankruptcy proceeding of the general partner, or the entry of a final non-
appealable judgment ruling that the general partner is bankrupt or insolvent
(except that, in either such case, in certain circumstances the limited
partners (other than the Company)
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may vote to continue the Operating Partnership and substitute a new general
partner in place of the Company); and (v) on or after January 1, 2046, at the
option of the Company, in its sole and absolute discretion. Upon dissolution,
the Company, as general partner, or any liquidator will proceed to liquidate
the assets of the Operating Partnership and apply the proceeds therefrom in
the order of priority set forth in the Partnership Agreement.
LIABILITY AND INDEMNIFICATION
Liability of the Company and Limited Partners. The Company, as general
partner of the Operating Partnership, is liable for all general recourse
obligations of the Operating Partnership to the extent not paid by the
Operating Partnership. The Company is not liable for the nonrecourse
obligations of the Operating Partnership. Assuming that a limited partner does
not take part in the control of the business of the Operating Partnership and
otherwise acts in conformity with the provisions of the Partnership Agreement
and the Act, the liability of a limited partner for obligations of the
Operating Partnership under the Partnership Agreement and the Act will be
limited, subject to certain exceptions, generally to the loss of such limited
partner's investment in the Operating Partnership represented by his Units.
The Operating Partnership will operate in a manner that the Company deems
reasonable, necessary or appropriate to preserve the limited liability of the
limited partners.
Exculpation and Indemnification of the Company. The Partnership Agreement
generally provides that the Company, as general partner of the Operating
Partnership, will incur no liability to the Operating Partnership or any
limited partner for losses sustained, liabilities incurred or benefits not
derived as a result of errors in judgment or mistakes of fact or law or of any
act or omission, if the Company carried out its duties in good faith. In
addition, the Company is not responsible for any misconduct or negligence on
the part of its agents, provided the Company appointed such agents in good
faith.
The Partnership Agreement also provides for indemnification (including, in
certain circumstances, the advancement of expenses) of the Company, the
trustees and officers of the Company and such other persons as the Company may
from time to time designate against any judgments, penalties, fines,
settlements and reasonable expenses that are actually (or will be) incurred by
such person in connection with a proceeding in which any such person is
involved, or is threatened to be involved, as a party or otherwise, unless it
is established that: (i) the act or omission of the indemnified person was
material to the matter giving rise to the proceeding and either was committed
in bad faith or was the result of active and deliberate dishonesty; (ii) the
indemnified person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission
was unlawful.
TRANSFERS OF INTERESTS
Restrictions on Transfer of the Company's Interest. The Company may not
transfer any of its interests as general or limited partner in the Operating
Partnership, except in connection with a merger or sale of all or
substantially all of its assets, in which (i) the limited partners in the
Operating Partnership either will receive, or will have the right to receive,
substantially the same consideration as holders of Common Shares, and (ii)
such transaction has been approved by the holders of a majority of the
interests in the Operating Partnership (including interests held by the
Company). See "--Operational Matters--Sales of Assets " above.
Restrictions on Transfers of Units by Limited Partners. For one year after
the completion of the Offering, a limited partner may not transfer any of his
rights as a limited partner without the consent of the Company, which consent
the Company may withhold in its sole discretion. Any attempted transfer in
violation of this restriction will be void ab initio and without any force or
effect. Beginning one year after the completion of the Offering, limited
partners (other than the Company) will be permitted to transfer all or any
portion of their Units without restriction as long as they satisfy certain
requirements set forth in the Partnership Agreement. In addition, limited
partners will be permitted to dispose of their Units following the expiration
of up to a one year period following the completion of the Offering by
exercising the redemption right described below. See "--Redemption of Units"
below.
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The right of any permitted transferee of Units to become a substituted
limited partner is subject to the consent of the Company, which consent the
Company may withhold in its sole and absolute discretion. If the Company does
not consent to the admission of a transferee of Units as a substituted limited
partner, then the transferee will succeed to all economic rights and benefits
attributable to such Units (including the redemption right described below),
but will not become a limited partner or possess any other rights of limited
partners (including the right to vote).
Redemption of Units. Subject to certain limitations and exceptions, holders
of Units (other than the Company) have the right to have each of their Units
redeemed by the Operating Partnership at any time beginning one year after the
completion of the Formation Transactions. Unless the Company elects to assume
and perform the Operating Partnership's obligation with respect to the
redemption right, as described below, the limited partner will receive cash
from the Operating Partnership in an amount equal to the market value of the
Units to be redeemed. The market value of a Unit for this purpose will be
equal to the average of the closing trading price of a Common Share on the
NYSE for the ten trading days before the day on which the redemption notice
was given to the Operating Partnership of exercise of the redemption right. In
lieu of the Operating Partnership's acquiring the Units for cash, the Company
will have the right (except as described below, if the Common Shares are not
publicly traded) to elect to acquire the Units directly from a limited partner
exercising the redemption right, in exchange for either cash or Common Shares,
and, upon such acquisition, the Company will become the owner of such Units.
The redemption generally will occur on the tenth business day after the notice
to the Operating Partnership, except that no redemption or exchange can occur
if delivery of Common Shares would be prohibited either under the provisions
of the Company's Declaration of Trust designed primarily to protect the
Company's qualification as a REIT or under applicable Federal or state
securities laws as long as the Common Shares are publicly traded. See "Capital
Shares--Restrictions on Transfer--Ownership Limits."
In the event that the Common Shares are not publicly traded but another
entity whose stock is publicly traded owns more than 50% of the capital shares
of the Company (referred to as the "Parent Entity"), the redemption right will
be determined by reference to the publicly traded stock of the Parent Entity
and the Company will have the right to elect to acquire the Units to be
redeemed for publicly traded stock of the Parent Entity. In the event that the
Common Shares are not publicly traded and there is no Parent Entity with
publicly traded stock, the redemption right will be based upon the fair market
value of the Operating Partnership's assets at the time the redemption right
is exercised (as determined in good faith by the Company based upon a
commercially reasonable estimate of the amount that would be realized by the
Operating Partnership if each asset of the Operating Partnership were sold to
an unaffiliated purchaser in an arm's length transaction where neither the
purchaser nor the seller were under economic compulsion to enter into the
transaction), and the Company and the Operating Partnership will be obligated
to satisfy the redemption right in cash (unless the redeeming partner, in such
partner's sole and absolute discretion, consents to the receipt of Common
Shares), payable on the thirtieth business day after notice was given to the
Operating Partnership of exercise of the redemption right.
EXTRAORDINARY TRANSACTIONS
The Partnership Agreement provides that the Company may not generally engage
in any merger, consolidation or other combination with or into another person
or sale of all or substantially all of its assets, or any reclassification, or
any recapitalization or change of outstanding Common Shares (a "Business
Combination"), unless the holders of Units will receive, or have the
opportunity to receive, the same consideration per Unit as holders of Common
Shares receive per Common Share in the transaction; if holders of Units will
not be treated in such manner in connection with a proposed Business
Combination, the Company may not engage in such transaction unless Unitholders
(other than the Company) holding more than 50% of the Units vote to approve
the Business Combination. In addition, as provided in the Partnership
Agreement, the Company will not consummate a Business Combination with respect
to which the Company conducted a vote of the shareholders unless the matter
would have been approved had holders of Units (other than the Company) been
able to vote together with the shareholders on the transaction. The foregoing
provisions of the Partnership Agreement would under no circumstances enable or
require the Company to engage in a Business Combination
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which required the approval of the Company's shareholders if the Company's
shareholders did not in fact give the requisite approval. Rather, if the
Company's shareholders did approve a Business Combination, the Company would
not consummate the transaction unless (i) the Company as general partner first
conducts a vote of Unitholders (including the Company) on the matter, (ii) the
Company votes the Units held by it in the same proportion as the shareholders
of the Company voted on the matter at the shareholder vote and (iii) the
result of such vote of the Unitholders (including the proportionate vote of
the Company's Units) is that had such vote been a vote of shareholders, the
Business Combination would have been approved by the shareholders. As a result
of these provisions of the Partnership Agreement, a third party may be
inhibited from making an acquisition proposal that it would otherwise make, or
the Company, despite having the requisite authority under its Declaration of
Trust, may not be authorized to engage in a proposed Business Combination.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Shares (or Common Shares for which Units are exchangeable)
by (i) each trustee (and trustee nominee) of the Company, (ii) each executive
officer of the Company, (iii) all trustees (including trustee nominees) and
executive officers of the Company as a group, and (iv) each person or entity
which is expected to be the beneficial owner of 5% or more of the outstanding
Common Shares immediately following the completion of the Offering. Except as
indicated below, all of such Common Shares are owned directly, and the
indicated person or entity has sole voting and investment power. The extent to
which a person will hold Common Shares as opposed to Units is set forth in the
footnotes below. The address of each party listed below is c/o LaSalle Hotel
Properties, 220 East 42nd Street, New York, New York 10017.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES AND UNITS PERCENT OF ALL SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED ALL SHARES(1) AND UNITS(2)
- ------------------------------------ ------------------ ------------- ------------
<S> <C> <C> <C>
LaSalle Partners Incorporated(3). 1,928,483 11.96% 10.54%
Michael Steinhardt(4)............ 1,565,983 9.39 8.56%
Shimon Topor(4).................. 1,565,983 9.39 8.56%
Stuart L. Scott(5)............... -- -- --
Jon E. Bortz..................... -- -- --
Michael D. Barnello.............. -- -- --
Darryl Hartley-Leonard........... -- -- --
George F. Little, II............. -- -- --
Donald S. Perkins................ -- -- --
Donald A. Washburn............... -- -- --
Trustees, trustee nominees and
executive officers as a group
(ten persons)................... 3,494,466 23.12% 19.10%
</TABLE>
- --------
(1) Assumes 15,112,122 Common Shares following the Offering. Assumes that all
Units held by the person are redeemed for Common Shares. The total number
of Common Shares outstanding used in calculating this percentage assumes
that none of the Units held by other persons are redeemed for Common
Shares.
(2) Assumes a total of 18,293,845 Common Shares and Units outstanding
immediately following the Offering (15,112,122 Common Shares and 3,181,723
Units, which may be redeemed for cash or Common Shares under certain
circumstances). Assumes that all Units held by the person are redeemed for
Common Shares. The total number of Common Shares outstanding used in
calculating this percentage assumes that all of the Units held by other
persons are redeemed for Common Shares.
(3) Includes Common Shares and Units received by the LaSalle affiliated
Contributors over which LaSalle has a direct or indirect interest but
might be deemed to be the beneficial owner for purposes of Rule 13d-3
("Rule 13d-3") promulgated pursuant to the Securities Exchange Act of
1934, as amended.
(4) Messrs. Steinhardt and Topor share the right to direct the voting and
investment of Units by virtue of their direct and indirect common control
of various entities holding the Units.
(5) Does not include an aggregate of 56,546 Common Shares and Units owned by
the Contributors that are affiliates of LaSalle in which Mr. Scott has
direct or indirect interest but might be deemed to be the beneficial owner
for purposes of Rule 13d-3. The Company has been informed that the
Contributors that are affiliates of LaSalle and over which Mr. Scott has
no control regarding disposition of assets does not intend on distributing
to holders of interests therein. Mr. Scott disclaims beneficial ownership
of such Common Shares and Units.
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SHARES OF BENEFICIAL INTEREST
The summary of the terms of the shares of beneficial interest of the Company
set forth below does not purport to be complete and is subject to and
qualified by reference to the Declaration of Trust and Bylaws of the Company,
copies of which are exhibits to the Registration Statement of which this
Prospectus is a part.
GENERAL
The Declaration of Trust of the Company provides that the Company may issue
100 million Common Shares and 20 million Preferred Shares. As of January 15,
1998, 100 Common Shares were issued and outstanding.
Under the Maryland REIT Law, a shareholder is not personally liable for the
obligations of the Company solely as a result of his status as a shareholder.
The Declaration of Trust provides that no shareholder shall be liable for any
debt or obligation of the Company by reason of being a shareholder nor shall
any shareholder be subject to any personal liability in tort, contract or
otherwise to any person in connection with the property or affairs of the
Company by reason of being a shareholder. The Company's Bylaws further provide
that the Company shall indemnify each present or former shareholder against
any claim or liability to which the shareholder may become subject by reason
of being or having been a shareholder and that the Company shall reimburse
each shareholder for all reasonable expenses incurred by him or her in
connection with any such claim or liability. However, with respect to tort
claims, contractual claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in
some jurisdictions, be personally liable to the extent that such claims are
not satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
COMMON SHARES
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of the Declaration of Trust
regarding restrictions on transfers of shares of beneficial interest, holders
of Common Shares are entitled to receive distributions if, as and when
authorized and declared by the Board of Trustees out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its shareholders in the event of its
liquidation, dissolution or winding up after payment of, or adequate provision
for, all known debts and liabilities of the Company. The Company currently
intends to pay regular quarterly distributions.
Subject to the provisions of the Company's Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a
vote of shareholders, including the election of trustees, and, except as
provided with respect to any other class or series of shares of beneficial
interest, the holders of Common Shares will possess the exclusive voting
power. There is no cumulative voting in the election of trustees, which means
that the holders of a majority of the outstanding Common Shares can elect all
of the trustees then standing for election, and the holders of the remaining
shares of beneficial interest, if any, will not be able to elect any trustees.
Holders of Common Shares have no preferences, conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company. Subject to the exchange provisions of the Company's Declaration of
Trust regarding restrictions on transfer, Common Shares have equal
distribution, liquidation and other rights.
Pursuant to the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of
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shareholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes entitled to be cast on the matter) is set forth in the trust's
declaration of trust. The Company's Declaration of Trust provides that the
Board of Trustees, with the approval of a majority of the votes entitled to be
cast at a meeting of shareholders, may amend the Declaration of Trust from
time to time to increase or decrease the aggregate number of shares or the
number of shares of any class that the Company has authority to issue. The
Company's Declaration of Trust also provides that a merger transaction or
termination of the trust must be approved, at a meeting of the shareholders
called for that purpose, by the affirmative vote of not less than sixty-six
and two-thirds percent (66 2/3%) of all the votes entitled to be cast on the
matter. Under the Maryland REIT Law, a declaration of trust may permit the
trustees by a two-thirds vote to amend the Declaration of Trust from time to
time to qualify as a REIT under the Code or the Maryland REIT Law without the
affirmative vote or written consent of the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees.
PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to issue 20
million Preferred Shares and to classify any unissued Preferred Shares or to
reclassify any previously classified but unissued Preferred Shares of any
series from time to time, in one or more series. Prior to issuance of shares
of each series, the Board of Trustees is required by the Maryland REIT Law and
the Declaration of Trust of the Company to set, subject to the provisions of
the Declaration of Trust regarding the restriction on transfer of shares of
beneficial interest, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such series. Thus, the Board could authorize the issuance of Preferred Shares
with terms and conditions which could have the effect of delaying, deferring
or preventing a transaction or a change in control of the Company that might
involve a premium price for holders of Common Shares or otherwise be in their
best interest. As of the date hereof, no Preferred Shares are outstanding and
the Company has no present plans to issue any Preferred Shares.
POWER TO ISSUE ADDITIONAL COMMON SHARES AND PREFERRED SHARES
The Company believes that the power of the Board of Trustees to issue
additional authorized but unissued Common Shares or Preferred Shares in one or
more series will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. Authorized but unissued Common Shares or Preferred Shares will be
available for issuance without further action by the Company's shareholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may
be listed or traded.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of beneficial interest may be owned, actually
or constructively, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than
the first year for which an election to be treated as a REIT has been made) or
during a proportionate part of a shorter taxable year. In addition, if the
Company, or an owner of 10% or more of the Company, actually or constructively
owns 10% or more of a tenant of the Company (or a tenant of any partnership in
which the Company is a partner), the rent received by the Company (either
directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. A
REIT's shares also must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate
part of a shorter taxable year (other than the first year for which an
election to be treated as a REIT has been made).
Because the Board of Trustees believes it is desirable for the Company to
qualify as a REIT, the Declaration of Trust, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than the Ownership Limit. The
ownership attribution rules under the
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Code are complex and may cause Common Shares owned actually or constructively
by a group of related individuals and/or entities to be owned constructively
by one individual or entity. As a result, the acquisition of less than 9.8% of
the Common Shares (or the acquisition of an interest in an entity that owns,
actually or constructively, Common Shares) by an individual or entity, could,
nevertheless cause that individual or entity, or another individual or entity,
to own constructively in excess of 9.8% of the outstanding Common Shares and
thus subject such Common Shares to the Ownership Limit. The Board of Trustees
may grant an exemption from the Ownership Limit with respect to one or more
persons who would not be treated as "individuals" for purposes of the Code if
such person submits to the Board information satisfactory to the Board, in its
reasonable discretion, demonstrating that (i) such person is not an individual
for purposes of the Code, (ii) such ownership will not cause a person who is
an individual to be treated as owning Common Shares in excess of the Ownership
Limit, applying the applicable constructive ownership rules, and (iii) such
ownership will not otherwise jeopardize the Company's status as a REIT. As a
condition of such waiver, the Board of Trustees may, in its reasonable
discretion, require undertakings or representations from the applicant to
ensure that the conditions in clauses (i), (ii) and (iii) of the preceding
sentence are satisfied and will continue to be satisfied as long as such
person owns shares in excess of the Ownership Limit. Under certain
circumstances, the Board of Trustees may, in its sole and absolute discretion,
grant an exemption for individuals or entities to acquire any series or class
of Preferred Shares in excess of the Ownership Limit, provided that certain
conditions are met and any representations and undertakings that may be
required by the Board of Trustees are made. In either circumstance, prior to
granting any exemption, the Board of Trustees must receive a ruling from the
Internal Revenue Service or advice of counsel, in either case in form and
substance satisfactory to the Board of Trustees, as it may deem necessary or
advisable in order to determine or ensure the Company's status as a REIT.
The Declaration of Trust further prohibits (a) any person from actually or
constructively owning shares of beneficial interest of the Company that would
result in the Company being "closely held" under Section 856(h) of the Code or
otherwise cause the Company to fail to qualify as a REIT and (b) any person
from transferring shares of beneficial interest of the Company if such
transfer would result in shares of beneficial interest of the Company being
owned by fewer than 100 persons.
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of beneficial interest of the Company that
will or may violate any of the foregoing restrictions on transferability and
ownership is required to give notice immediately to the Company and provide
the Company with such other information as the Company may request in order to
determine the effect of such transfer on the Company's status as a REIT.
If any purported transfer of shares of beneficial interest of the Company or
any other event would otherwise result in any person violating the Ownership
Limit or the other restrictions in the Declaration of the Trust, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
that exceeds the Ownership Limit (referred to as "Excess Shares") and the
Prohibited Transferee shall acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to any such shares in excess of the Ownership Limit (the "Prohibited
Owner") shall cease to own any right or interest) in such Excess Shares. Any
such Excess Shares described above will be transferred automatically, by
operation of law, to a trust, the beneficiary of which will be a qualified
charitable organization selected by the Company (the "Beneficiary"). Such
automatic transfer shall be deemed to be effective as of the close of business
on the Business Day (as defined in the Declaration of Trust) prior to the date
of such violating transfer. Within 20 days of receiving notice from the
Company of the transfer of shares to the trust, the trustee of the trust (who
shall be designated by the Company and be unaffiliated with the Company and
any Prohibited Transferee or Prohibited Owner) will be required to sell such
Excess Shares to a person or entity who could own such shares without
violating the Ownership Limit, and distribute to the Prohibited Transferee an
amount equal to the lesser of the price paid by the Prohibited Transferee for
such Excess Shares or the sales proceeds received by the trust for such excess
shares. In the case of any Excess Shares resulting from any event other than a
transfer, or from a transfer for no consideration (such as a gift), the
trustee will be required to sell such Excess Shares to a qualified person or
entity and distribute to the Prohibited Owner
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an amount equal to the lesser of the fair market value of such Excess Shares
as of the date of such event or the sales proceeds received by the trust for
such Excess Shares. In either case, any proceeds in excess of the amount
distributable to the Prohibited Transferee or Prohibited Owner, as applicable,
will be distributed to the Beneficiary. Prior to a sale of any such Excess
Shares by the trust, the trustee will be entitled to receive, in trust for the
Beneficiary, all dividends and other distributions paid by the Company with
respect to such Excess Shares, and also will be entitled to exercise all
voting rights with respect to such Excess Shares. Subject to Maryland law,
effective as of the date that such shares have been transferred to the trust,
the trustee shall have the authority (at the trustee's sole discretion and
subject to applicable law) (i) to rescind as void any vote cast by a
Prohibited Transferee prior to the discovery by the Company that such shares
have been transferred to the trust and (ii) to recast such vote in accordance
with the desires of the trustee acting for the benefit of the Beneficiary.
However, if the Company has already taken irreversible corporate action, then
the trustee shall not have the authority to rescind and recast such vote. Any
dividend or other distribution paid to the Prohibited Transferee or Prohibited
Owner (prior to the discovery by the Company that such shares had been
automatically transferred to a trust as described above) will be required to
be repaid to the trustee upon demand for distribution to the Beneficiary. If
the transfer to the trust as described above is not automatically effective
(for any reason) to prevent violation of the Ownership Limit, then the
Declaration of Trust provides that the transfer of the Excess Shares will be
void.
In addition, shares of beneficial interest of the Company held in the trust
shall be deemed to have been offered for sale to the Company, or its designee,
at a price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the trust (or, in the case of a
devise or gift, the market value at the time of such devise or gift) and (ii)
the market value of such shares on the date of the Company, or its designee,
accepts such offer. The Company shall have the right to accept such offer for
a period of 90 days after the transfer of Excess Shares to the Trust. Upon
such a sale to the Company, the interest of the Beneficiary in the shares sold
shall terminate and the trustee shall distribute the net proceeds of the sale
to the Prohibited Owner.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
All certificates representing shares of beneficial interest shall bear a
legend referring to the restrictions described above.
Each shareholder will, upon demand, be required to disclose to the Company
in writing such information with respect to the direct, indirect and
constructive ownership of shares of beneficial interest as the Board of
Trustees deems reasonably necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.
These Ownership Limitations could have the effect of delaying, deferring or
preventing a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares
over the then prevailing market price or which such holders might believe to
be otherwise in their best interest.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Harris Trust and
Savings Bank.
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CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S DECLARATION OF TRUST AND
BYLAWS
The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company does not purport to be complete
and is subject to and qualified by reference to Maryland law and the
Declaration of Trust and Bylaws of the Company, copies of which are exhibits
to the Registration Statement of which this Prospectus is a part.
The Declaration of Trust and Bylaws of the Company contain certain
provisions that could make more difficult an acquisition or change in control
of the Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Trustees.
The Company believes that the benefits of these provisions outweigh the
potential disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals might result in an improvement of their
terms. See also "Shares of Beneficial Interest--Restrictions on Ownership and
Transfer."
NUMBER OF TRUSTEES; CLASSIFICATION AND REMOVAL OF BOARD OF TRUSTEES; OTHER
PROVISIONS
Effective immediately following the closing of the Offering, the Declaration
of Trust will provide that the Board of Trustees shall consist of seven
members and may be thereafter increased or decreased in accordance with the
Bylaws of the Company, provided that the total number of Trustees may not be
fewer than three or more than nine. Pursuant to the Company's Bylaws, the
number of trustees shall be fixed by the Board of Trustees within the limits
set forth in the Declaration of Trust. Following the closing of the Offering,
the Company's Declaration of Trust also will provide for the Board of Trustees
to be divided into three classes of Trustees, with each class to consist as
nearly as possible of an equal number of Trustees. The term of office of the
first class of trustees will expire at the 1999 annual meeting of
shareholders; the term of the second class of trustees will expire at the 2000
annual meeting of shareholders; and the term of the third class of trustees
will expire at the 2001 annual meeting of shareholders. At each annual meeting
of shareholders, the class of trustees to be elected at such meeting will be
elected for a three year term, and the trustees in the other two classes will
continue in office. Because shareholders will have no right to cumulative
voting for the election of trustees, at each annual meeting of shareholders
the holders of a majority of the Common Shares will be able to elect all of
the successors to the class of trustees whose term expires at that meeting.
The Company's Declaration of Trust also provides that, except for any
trustees who may be elected by holders of a class or series of shares of
beneficial interest other than the Common Shares, Trustees may be removed only
for cause and only by the affirmative vote of shareholders holding at least a
majority of the shares then outstanding and entitled to be cast for the
election of trustees. Vacancies on the Board of Trustees may be filled by the
concurring vote of a majority of the remaining trustees and, in the case of a
vacancy resulting from the removal of a trustee by the shareholders, by a
majority of the votes entitled to be cast for the election of trustees. Under
Maryland law, trustees may fill any vacancy only until the next annual meeting
of shareholders. A vote of shareholders holding at least two-thirds of all the
votes entitled to be cast thereon is required to amend, alter, change, repeal
or adopt any provisions inconsistent with the foregoing classified board and
trustee removal provisions. These provisions may make it more difficult and
time consuming to change majority control of the Board of Trustees of the
Company and, thus, may reduce the vulnerability of the Company to an
unsolicited proposal for the takeover of the Company or the removal of
incumbent management.
Because the Board of Trustees will have the power to establish the
preferences and rights of additional series of shares of beneficial interest
without a shareholder vote, the Board of Trustees may afford the holders of
any series of senior shares of beneficial interest preferences, powers and
rights, voting or otherwise, senior to the rights of holders of Common Shares.
The issuance of any such senior shares of beneficial interest could have the
effect of delaying, deferring or preventing a change in control of the
Company. The Board of Trustees, however, currently does not contemplate the
issuance of any shares of beneficial interest other than Common Shares. See
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"Management--Limitation of Liability and Indemnification" for a description of
the limitations on liability of trustees and officers of the Company and the
provisions for indemnification of trustees and officers provided for under
applicable Maryland law and the Declaration of Trust.
CHANGES IN CONTROL PURSUANT TO MARYLAND LAW
Maryland Business Combination Law. Under the MGCL, as applicable to real
estate investment trusts, certain "business combinations" (including certain
issuances of equity securities) between a Maryland real estate investment
trust and any interested shareholder or an affiliate of the interested
shareholder are prohibited for five years after the most recent date on which
the interested shareholder becomes an interested shareholder. Thereafter, any
such business combination must be recommended by the board of trustees of such
trust and approved by the affirmative vote of at least (i) 80% of all the
votes entitled to be cast by holders of the outstanding shares of voting stock
and (ii) two-thirds of the votes entitled to be cast by holders of voting
stock held by the interested shareholder who is (or whose affiliate is) a
party to the business combination unless, among other conditions, the trust's
common shareholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the interested shareholder for its common shares.
Maryland Control Share Acquisition Law. In addition, also under the MGCL, as
applicable to real estate investments trusts, "control shares" acquired in a
"control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror, by officers or by trustees who
are employees of the trust. "Control shares" are voting shares which, if
aggregated with all other such shares previously acquired by the acquiror or
in respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing trustees within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third; (ii) one-third or more but less than a majority; or (iii) a majority or
more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
shareholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the trust may redeem any
or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other shareholders may exercise appraisal rights. The fair value of
the shares as determined for purposes of such appraisal rights may not be less
than the highest price per share paid by the acquiror in the control share
acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. As permitted by the MGCL, the Company's Bylaws
provide that the control share provisions of the MGCL do not apply to the
Company. However, the Board of Trustees, through its exclusive power to amend
the Bylaws, may elect to adopt these provisions in the future.
AMENDMENTS TO THE DECLARATION OF TRUST AND BYLAWS
The Declaration of Trust, including its provisions on classification of the
Board of Trustees, restrictions on transferability of Common Shares and
removal of trustees, may be amended only by a resolution adopted by the
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Board of Trustees and approved at an annual or special meeting of the
shareholders by the affirmative vote of the holders of not less than two-
thirds of all of the votes entitled to be cast on the matter. However,
amendments relating to changes in the number of authorized shares of
beneficial interest of the Company require the approval of holders of a
majority of all votes entitled to be cast at a meeting of shareholders at
which a quorum is present. Under the Maryland REIT law, a declaration of trust
may permit the trustees by a two-thirds vote to amend the declaration from
time to time to qualify as a REIT under the Code or the Maryland REIT law
without the affirmative vote or written consent of the shareholders. The
Company's Declaration of Trust permits such action by the Board of Trustees.
The Bylaws of the Company provide that the trustees have the exclusive right
to amend the Bylaws.
ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Trustees
and the proposal of business to be considered by shareholders may be made only
(A) pursuant to the Company's notice of the meeting, (B) by the Board of
Trustees or (C) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(ii) with respect to special meetings of the shareholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of
Trustees may be made only (A) pursuant to the Company's notice of the meeting,
(B) by the Board of Trustees or (C) provided that the Board of Trustees has
determined that trustees shall be elected at such meeting, by a shareholder
who is entitled to vote at the meeting and has complied with the advance
notice provisions set forth in the Bylaws.
MEETINGS OF SHAREHOLDERS
The Company's Bylaws provide that annual meetings of shareholders shall be
held on a date and at the time set by the Board of Trustees during the month
of May each year (commencing in May 1999). Special meetings of the
shareholders may be called by (i) the Chairman of the Board of the Company,
(ii) the President or (iii) one-third of the Board of Trustees. As permitted
by the MGCL, the Bylaws of the Company provide that special meetings must be
called by the Secretary of the Company upon the written request of the holders
of shares entitled to cast not less than a majority of all votes entitled to
be cast at the meeting. Pursuant to the Declaration of Trust and Bylaws of the
Company, any action required or permitted to be taken by the shareholders must
be effected at a duly called annual or special meeting of shareholders and may
not be effected by any consent in writing by shareholders, unless such consent
is unanimous.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The business combination provisions of the MGCL (and the control share
acquisition provisions of the MGCL if they ever become applicable to the
Company), the provisions of the Declaration of Trust on classification of the
Board of Trustees and removal of Trustees, the provisions for amending the
Declaration of Trust and Bylaws and the advance notice provisions of the
Bylaws could delay, defer or prevent a transaction or a change in control of
the Company that might involve a premium price for holders of Common Shares or
otherwise be in their best interests. The Declaration of Trust, as in effect,
provides that a merger, consolidation or sale of all or substantially all of
the assets of the Company must be approved, at a meeting called for that
purpose, by the affirmative vote of the holders of not less than two-thirds of
the then outstanding shares entitled to vote thereon.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high grade short term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.
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SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the completion of the Offering, the Company will have outstanding
15,112,122 Common Shares (17,242,122 Common Shares if the Underwriters' over-
allotment option is exercised in full). In addition, 3,181,723 Common Shares
are reserved for issuance upon exchange of Units issued to the Contributors.
None of the Contributors can exchange such Units for Common Shares for one
year from the closing of the Offering. The Common Shares issued in the
Offering will be freely tradable by persons other than "affiliates" of the
Company without restriction under the Securities Act, subject to the
limitations on ownership set forth in this Prospectus. See "Shares of
Beneficial Interest." Any Common Shares issued to the Contributors or acquired
in exchange for Units in connection with the Formation Transactions
(collectively, the "Restricted Common Shares"), will be "restricted"
securities under the meaning of Rule 144 promulgated under the Securities Act
("Rule 144") and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
exemptions contained in Rule 144. As described below under "--Registration
Rights," the Company has granted certain holders registration rights with
respect to their Restricted Common Shares.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Common Shares from
the Company or any "affiliate" of the Company, as that term is defined under
the Securities Act, the acquiror or subsequent holder thereof is entitled to
sell within any three month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Shares or the average weekly
trading volume of the Common Shares during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 also are subject to certain manner of sales provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of Restricted
Common Shares from the Company or from any "affiliate" of the Company, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate
of the Company at any time during the 90 days immediately preceding a sale,
such person is entitled to sell such shares in the public market under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
The Company, its officers and trustees, the Advisor and the Contributors
have agreed not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any Units or
Common Shares of the Company, or any securities convertible or exercisable or
exchangeable for any Units or Common Shares of the Company for the applicable
holding period (other than pursuant to the Share Option Plan, the option grant
to the Advisor and the share purchase rights granted to the Contributors), for
a period of 180 days in the case of the Company, and one year in the case of
the Company's officers and Trustees, the Adviser and the Contributors, from
the closing of the Offering, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, subject to certain
limited exceptions. Prudential Securities Incorporated may, in its sole
discretion, at any time and without notice, release all or any portion of the
Common Shares or Units subject to the foregoing lock-up agreements.
Prior to the Offering, there has been no public market for the Common
Shares. Trading of the Common Shares on the NYSE is expected to commence
immediately following completion of the Offering. No prediction can be made as
to the effect, if any, that future sales of Common Shares or the availability
of Common Shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Shares (including
Common Shares issued upon the exercise of options or purchase rights or the
exchange of Units), or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Shares. See "Risk
Factors--Lack of a Prior Public Market" and "Partnership Agreement--
Restrictions on Transfer."
REGISTRATION RIGHTS
The Company will grant demand registration rights to the Contributors with
respect to Restricted Common Shares owned by them as of the closing of the
Offering or upon the exercise of share purchase rights and to the
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Advisor upon exercise of its options. The Company also will grant demand
registration rights to any shareholder with respect to any Restricted Common
Shares acquired by such shareholder in redemption of Units. The Company will
bear all expenses incident to these registration requirements, except for any
underwriting discounts or commissions or transfer taxes, if any, relating to
such Restricted Common Shares.
In addition, the Company will adopt the Share Option Plan for the purpose of
attracting and retaining highly qualified trustees and providing incentives to
the Advisor. See "REIT Management--Share Option and Incentive Plan" and "--
Compensation of the Board of Trustees." The Company intends to grant options
to purchase approximately 25,000 Common Shares to trustees upon the completion
of the Offering. Following the completion of the Offering, the Company expects
to file a registration statement with the SEC with respect to the Common
Shares issuable under the Share Option Plan, which shares may be resold
without restriction, unless held by affiliates.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes the material Federal income tax
consequences that are generally applicable to all prospective shareholders of
the Company. The specific tax consequences of owning Common Shares will vary
for shareholders because of the different circumstances of shareholders and
the discussion contained herein does not purport to address all aspects of
Federal income taxation that may be relevant to particular holders in light of
their personal investment or tax circumstances.
The information in this section and the opinions of Brown & Wood llp are
based on the Code, existing and proposed Treasury Regulations thereunder,
current administrative interpretations and court decisions. No assurance can
be given that future legislation, Treasury Regulations, administrative
interpretations and court decisions will not significantly change current law
or affect existing interpretations of current law in a manner which is adverse
to shareholders. Any such change could apply retroactively to transactions
preceding the date of change. The Company and the Operating Partnership do not
plan to obtain any rulings from the IRS concerning any tax issue with respect
to the Company. Thus, no assurance can be provided that the opinions and
statements set forth herein (which do not bind the IRS or the courts) will not
be challenged by the IRS or will be sustained by a court if so challenged. The
following description does not constitute tax advice.
This summary does not give a detailed discussion of state, local or foreign
tax considerations. Except where indicated, the discussion below describes
general Federal income tax considerations applicable to individuals who are
citizens or residents of the United States. Accordingly, the following
discussion has limited application to domestic corporations and persons
subject to specialized Federal income tax treatment, such as foreign persons,
trusts, estates, tax-exempt entities, regulated investment companies and
insurance companies.
As used in this section, the term "Company" refers solely to LaSalle Hotel
Properties and the term "Operating Partnership" refers solely to LaSalle Hotel
Operating Partnership, L.P.
PROSPECTIVE SHAREHOLDERS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO SUCH
SHAREHOLDERS' RESPECTIVE PERSONAL TAX SITUATIONS, AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
TAXATION OF THE COMPANY
General. The Company will make an election to be taxed as a REIT under
Sections 856 through 860 of the Code effective for its taxable year ending
December 31, 1998. The Company believes that, commencing with such taxable
year, it will be organized in conformity with and will operate in such a
manner as to qualify for taxation as a REIT under the Code and the Company
intends to continue to operate in such a manner. Although the Company has been
structured so as to qualify to be treated as a REIT, no assurance can be given
that the Company will operate in a manner so as to qualify or remain qualified
as a REIT.
In the opinion of Brown & Wood llp, commencing with the Company's taxable
year ending December 31, 1998, the Company will be organized in conformity
with the requirements for qualification and taxation as a REIT under the Code
and the proposed method of operation of the Company will enable the Company to
meet the requirements for qualification and taxation as a REIT. This opinion
is based on various assumptions relating to the organization and operation of
the Company, the Operating Partnership and the Lessees and upon certain
representations made by the Company as to certain relevant factual matters,
including matters related to the organization and expected manner of operation
of the Company, the Operating Partnership and the Lessees. Brown & Wood llp
has not undertaken any obligation to update this opinion. Moreover, such
qualification and taxation as a REIT will depend upon the Company's ability to
meet on a continuing basis, through actual annual
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operating results, distribution levels and diversity of share ownership, the
various qualification tests imposed under the Code (discussed below). Brown &
Wood llp will not review compliance with these tests on a continuing basis.
Accordingly, no assurance can be given that the Company will satisfy such
tests on a continuing basis. See "--Failure to Qualify" below.
The following is a general summary of the material Code provisions that
govern the Federal income tax treatment of a REIT and its shareholders. These
provisions of the Code are highly technical and complex.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on net income that it distributes
currently to shareholders. This treatment substantially eliminates the "double
taxation" (taxation at both the corporate and shareholder levels) that
generally results from investment in a regular corporation. However, the
Company will be subject to Federal income and excise tax in certain
circumstances, including the following. First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property acquired
by foreclosure or otherwise on default of a loan secured by the property) held
primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, the Company will be
subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property (other than foreclosure
property) held primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax. Fifth, if the Company
fails to satisfy either the 75% gross income test or the 95% gross income test
(both of which are discussed below), but nonetheless maintains its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such
year (other than capital gain that the Company elects to retain and pay tax
on) and (iii) any undistributed taxable income from prior years, the Company
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, if the Company acquires any
asset from a C corporation (i.e., a corporation generally subject to full
corporate level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation and the Company recognizes
gain on the disposition of such asset during the ten-year period (the
"Recognition Period") beginning on the date on which such asset was acquired
by the Company, then, to the extent of such property's "built-in" gain (the
excess of the fair market value of such property at the time of acquisition by
the Company over the adjusted basis in such property at such time), such gain
will be subject to tax at the highest regular corporate rate applicable (the
"Built-In Gain Rule") pursuant to Treasury Regulations that have not yet been
promulgated. The total amount of gain on which the Company can be taxed is
limited to its net built-in gain at the time it acquired the property; i.e.,
the excess of the aggregate fair market value of its assets at the time it
acquired the property over the adjusted tax bases of those assets at that
time. As provided in IRS Notice 88-19, the results described above with
respect to the "built-in" gain assume that the Company would make an election
under Treasury Regulations that have not yet been promulgated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust, or association (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest; (iii) that
would be taxable as a domestic corporation, but for Sections 856 through 859
of the Code; (iv) that is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding shares of
which is owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities); and (vii) that meets certain
other tests, described below, regarding the nature of its income and assets.
The Code
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provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions (v) and (vi), however, will
not apply until after the first taxable year for which an election is made to
be taxed as a REIT. The Company anticipates issuing sufficient Common Shares
in the Offering with sufficient diversity of ownership to allow the Company to
satisfy conditions (v) and (vi) immediately following the Offering. In
addition, the Company's Declaration of Trust will include restrictions
regarding the transfer of its capital shares that are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(v) and (vi) above. See "Capital Shares--Restrictions on Transfer."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company's taxable year will be the calendar
year.
If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary,"
that subsidiary is disregarded for Federal income tax purposes and all assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as assets, liabilities and items of the REIT itself. (A qualified REIT
subsidiary is any corporation wholly owned by a REIT.) Similarly, a single
member limited liability company owned by the REIT or by the Operating
Partnership is generally disregarded as a separate entity for Federal income
tax purposes.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that for purposes of the gross income tests and asset
tests the REIT will be deemed to own its proportionate share (based on its
interest in partnership capital) of the assets of the partnership and will be
deemed to be entitled to the income of the partnership attributable to such
share. In addition, the assets and gross income of the partnership will retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and asset tests, that they
have in the hands of the Partnership. Thus, the Company's proportionate share
of the assets, liabilities and items of gross income of the Operating
Partnership will be treated as assets, liabilities and items of gross income
of the Company for purposes of applying the requirements described herein.
Income Tests. In order to maintain qualification as a REIT, three gross
income tests must be satisfied annually. First, at least 75% of the REIT's
gross income (excluding gross income from "prohibited transactions") for each
taxable year must be derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from such real property investments described above and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing.
The Company will derive the bulk of its income from the Participating
Leases. Accordingly, in order to qualify as a REIT, substantially all of the
income received by the Company pursuant to the Participating Leases must
constitute "rents from real property." Pursuant to the Participating Leases,
the Lessees will lease from the Operating Partnership the land (or ground
lease interest therein), buildings, improvements and FF&E comprising the
Initial Hotels, for periods ranging from six to 11 years. The Participating
Leases provide that the Lessees will be obligated to pay to the Operating
Partnership (i) the greater of Base Rent or Participating Rent (collectively,
the "Rents") and (ii) Additional Charges or other expenses as defined in the
Participating Lease Agreements. Participating Rent is calculated by
multiplying fixed percentages by various revenue categories for each of the
Initial Hotels. Both Base Rent and the thresholds in the Participating Rent
formulas will be adjusted for inflation. Base Rent accrues and is required to
be paid monthly. Participating Rent is payable quarterly in arrears on the
twentieth day of each fiscal quarter, with annual adjustments based on actual
results.
In order for Base Rent, Participating Rent and Additional Charges to
constitute "rents from real property," the Participating Leases must be
respected as true leases for Federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Participating Leases are true leases depends on
an analysis of all the surrounding facts and circumstances. In
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making such a determination, courts have considered a variety of factors,
including the following: (i) the intent of the parties, (ii) the form of the
agreement, (iii) the degree of control over the property that is retained by
the property owner (e.g., whether the lessee has substantial control over the
operation of the property or whether the lessee was required simply to use its
best efforts to perform its obligations under the agreement), and (iv) the
extent to which the property owner retains the risk of loss with respect to
the property (e.g., whether the lessee bears the risk of increases in
operating expenses or the risk of damage to the property) or the potential for
economic gain (e.g., appreciation) with respect to the property. In addition,
Code Section 7701(e) provides that a contract that purports to be a service
contract (or a partnership agreement) is treated instead as a lease of
property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property, (ii) the service recipient controls the
property, (iii) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated
to the service recipient for a substantial portion of the useful life of the
property, the recipient shares the risk that the property will decline in
value, the recipient shares in any appreciation in the value of the property,
the recipient shares in savings in the property's operating costs or the
recipient bears the risk of damage to or loss of the property), (iv) the
service provider bears any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient
and (vi) the total contract price does not substantially exceed the rental
value of the property for the contract period. Since the determination whether
a service contract should be treated as a lease is inherently factual, the
presence or absence of any single factor may not be dispositive in every case.
The Participating Leases have been structured with the intent to qualify as
true leases for Federal income tax purposes. Investors should be aware that
there are no controlling Treasury Regulations, published rulings or judicial
decisions involving leases with terms substantially the same as the
Participating Leases that discuss whether such leases constitute true leases
for Federal income tax purposes. Therefore, there can be no complete assurance
that the Service will not assert successfully a contrary position. If the
Participating Leases are recharacterized as service contracts or partnership
agreements, rather than true leases, part or all of the payments that the
Operating Partnership receives from the Lessees would not be considered rent
or would not otherwise satisfy the various requirements for qualification as
"rents from real property." In that case, the Company likely would not be able
to satisfy either the 75% or 95% gross income tests and, as a result, would
lose its REIT status. In rendering its opinion, described above, that the
Company's proposed method of operation will enable it to meet the requirement
for qualification and taxation as a REIT under the Code, Brown & Wood LLP has
relied upon representations made by the Company as to, among other things, the
commercial reasonableness of the Participating Leases, and the intent and
economic expectations of the parties to the Participating Leases and, taking
into account all surrounding facts and circumstances, the allocation of
economic risk between the parties to the Participating Leases.
In order for the Rents to constitute "rents from real property," several
other requirements also must be satisfied. One requirement is that the Rents
attributable to personal property leased in connection with the lease of the
real property comprising an Initial Hotel must not be greater than 15% of the
Rents received under the Participating Lease. The Rents attributable to the
personal property in an Initial Hotel is the amount that bears the same ratio
to total Rents for the taxable year as the average of the adjusted bases of
the personal property in an Initial Hotel at the beginning and at the end of
the taxable year bears to the average of the aggregate adjusted bases of both
the real and personal property comprising the Initial Hotel at the beginning
and at the end of such taxable year (the "Adjusted Basis Ratio"). If a portion
of the Rents from a particular hotel property does not qualify as "rents from
real property" because the amount attributable to personal property exceeds
15% of the total Rents for a taxable year, the portion of the Rents that is
attributable to personal property will not be qualifying income for purposes
of either the 75% or 95% gross income tests. Thus, if such Rents attributable
to personal property, plus any other nonqualifying income, during a taxable
year exceed 5% of the Company's gross income during the year, the Company
could lose its REIT status. With respect to each Initial Hotel (or interest
therein) that the Operating Partnership acquires in exchange for Units, the
initial adjusted bases of both the real and personal property comprising such
Initial Hotel generally will be the same as the adjusted bases of such
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property in the hands of the previous owner. With respect to each Initial
Hotel (or interest therein) that the Operating Partnership acquires for cash,
the aggregate initial adjusted bases of the real and personal property
comprising such Initial Hotel generally will equal the cash consideration paid
and such bases generally will be allocated among real and personal property
based on relative fair market values. With respect to each Initial Hotel, the
Company believes that the Adjusted Basis Ratio for the Initial Hotel is less
than 15% or that any nonqualifying income attributable to excess personal
property will not jeopardize the Company's ability to qualify as a REIT. The
Participating Leases provide that the Adjusted Basis Ratio for each Initial
Hotel shall not exceed 15%. The Participating Leases further provide that the
Lessees will cooperate in good faith and use their best efforts to prevent the
Adjusted Basis Ratio for any Initial Hotel from exceeding 15%, which
cooperation may include the purchase by the Lessees at fair market value of
enough personal property at such Initial Hotel so that the Adjusted Basis
Ratio for such Initial Hotel is less than 15%. Finally, amounts in the
Company's reserve for capital expenditures may not be expended to acquire
additional personal property for an Initial Hotel to the extent that such
acquisition would cause the Adjusted Basis Ratio for that Initial Hotel to
exceed 15%. There can be no assurance, however, that the Service would not
challenge the Company's calculation of an Adjusted Basis Ratio, or that a
court would not uphold such assertion. If such a challenge were successfully
asserted, the Company could fail to satisfy the 95% or 75% gross income test
and thus lose its REIT status.
Another requirement for qualification of the Rents as "rents from real
property" is that the Participating Rent must not be based in whole or in part
on the income or profits of any person. The Participating Rent, however, will
qualify as "rents from real property" if it is based on percentages of
receipts or sales and the percentages (i) are fixed at the time the
Participating Leases are entered into, (ii) are not renegotiated during the
term of the Participating Leases in a manner that has the effect of basing
Participating Rent on income or profits and (iii) conform with normal business
practice. More generally, the Participating Rent will not qualify as "rents
from real property" if, considering the Participating Leases and all the
surrounding circumstances, the arrangement does not conform with normal
business practice, but is in reality used as a means of basing the
Participating Rent on income or profits. Since the Participating Rent is based
on fixed percentages of the gross revenues from the Hotels that are
established in the Participating Leases, and the Company has represented that
the percentages (i) will not be renegotiated during the terms of the
Participating Leases in a manner that has the effect of basing the
Participating Rent on income or profits and (ii) conform with normal business
practice, the Participating Rent should not be considered based in whole or in
part on the income or profits of any person. Furthermore, the Company has
represented that, with respect to other hotel properties that it acquires in
the future, it will not charge rent for any property that is based in whole or
in part on the income or profits of any person (except by reason of being
based on a fixed percentage of gross revenues, as described above).
A third requirement for qualification of the Rents as "rents from real
property" is that the Company must not own, actually or constructively, 10% or
more of the stock of any Lessee that is a corporation or an interest in 10% or
more of the assets or net profits of any Lessee that is not a corporation.
Under the constructive ownership rules, if 10% or more in value of the shares
of the Company is owned, directly or indirectly, by or for any person, the
Company would be considered as owning the stock of corporations, and the
interests in assets or net profits of noncorporate entities, owned, directly
or indirectly, by or for such person. The Company initially will not own any
stock of the Lessees. The Limited Partners of the Operating Partnership may
acquire Common Shares (at the Company's option) by exercising their Redemption
Rights. The Partnership Agreement, however, provides that a redeeming limited
partner may not exercise its Redemption Right if and to the extent that the
delivery of Common Shares upon the exercise of such right would cause the
Company to own, actually or constructively, 10% or more of the ownership
interests in a Lessee, within the meaning of Section 856(d)(2)(B) of the Code.
The Declaration of Trust likewise prohibits a shareholder of the Company from
owning Common Shares or Preferred Shares that would cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a
Lessee, within the meaning of section 856(d)(2)(B) of the Code. Thus, the
Company should never own, actually or constructively, 10% or more of a Lessee.
Furthermore, the Company has represented that, with respect to other hotel
properties that it acquires in the future, it will not rent any property to a
Related Party Tenant. However, because the Code's constructive ownership rules
for purposes of the Related Party Tenant rules are broad and it is not
possible to monitor continually direct and indirect transfers of Common
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Shares, no absolute assurance can be given that such transfers or other events
of which the Company has no knowledge will not cause the Company to own
constructively 10% or more of the Lessee or any future lessee at some future
date.
A fourth requirement for qualification of the Rents as "rents from real
property" is that the Company cannot furnish or render noncustomary services
to the tenants of the Initial Hotels, or manage or operate the Initial Hotels,
other than through an independent contractor who is adequately compensated and
from whom the Company does not derive or receive any income, subject to
certain de minimis exceptions. Provided that the Participating Leases are
respected as true leases, the Company should satisfy that requirement, because
the Operating Partnership will not perform any services other than customary
ones for the Lessees. Furthermore, the Company has represented that, with
respect to other hotel properties that it acquires in the future, it will not
perform noncustomary services with respect to the tenant of the property.
If the Rents from a particular hotel property do not qualify as "rents from
real property" because either (i) the Participating Rent is considered based
on income or profits of an Lessee, (ii) the Company owns, actually or
constructively, 10% or more of a Lessee, or (iii) the Company furnishes
noncustomary services to the tenants of the Initial Hotels or manages or
operates the Initial Hotels, other than through a qualifying independent
contractor, none of the Rents from that hotel property would qualify as "rents
from real property." In that case, the Company likely would lose its REIT
status because it would be unable to satisfy either the 75% or 95% gross
income tests.
In addition to the Rents, the Lessees are required to pay to the Operating
Partnership Additional Charges. To the extent that Additional Charges
represent either (i) reimbursements of amounts that the Operating Partnership
is obligated to pay to third parties or (ii) penalties for nonpayment or late
payment of such amounts, Additional Charges should qualify as "rents from real
property." To the extent that Additional Charges represent interest that is
accrued on the late payment of the Rents or Additional Charges, such
Additional Charges may qualify as "rents from real property." To the extent
such Additional Charges representing interest are not treated as "rents from
real property," they should be treated as interest that qualifies for the 95%
gross income test.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales. Furthermore, to the extent that interest from a loan that
is based on the residual cash proceeds from sale of the property securing the
loan constitutes a "shared appreciation provision" (as defined in the Code),
income attributable to such participation feature will be treated as gain from
the sale of the secured property.
The Company will be subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualified
income under the 75% gross income test even if the property were not
foreclosure property), less expenses directly connected with the production of
such income. However, gross income from such foreclosure property will qualify
under the 75% and 95% gross income tests. "Foreclosure property" is defined as
any real property and any personal property incident to such real property (i)
that is acquired by a REIT as the result of such REIT having bid on such
property at foreclosure, or having otherwise reduced such property to
ownership or possession by agreement or process of law, after there was a
default (or default was imminent) on a lease of such property or on an
indebtedness that such property secured and (ii) for which such REIT makes a
proper election to treat such property as foreclosure property. Under the
Code, property generally ceases to be foreclosure property with respect to a
REIT as of the close of the third taxable year following the taxable year in
which such REIT acquired such property (or longer if an extension is granted
by the Secretary of the Treasury). The foregoing grace period is terminated
and foreclosure property ceases to be foreclosure property on the first day
(i) on which a lease is entered into with respect to such property that, by
its terms, will give rise to income that does not qualify under the 75% gross
income test or any amount is received or accrued, directly or indirectly,
pursuant to a lease entered into on or after such day that will give rise to
income that does not qualify under the 75% gross income test, (ii) on which
any construction takes place on such
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property (other than completion of a building, or any other improvement, where
more than 10% of the construction of such building or other improvement was
completed before default became imminent), or (iii) which is more than 90 days
after the day on which such property was acquired by the REIT and the property
is used in a trade or business which is conducted by the REIT (other than a
trade or business conducted through an independent contractor from whom the
REIT does not derive any income or a trade or business that generates
qualifying rents from real property). As a result of the rules with respect to
foreclosure property, if a Lessee defaults on its obligations under a
Participating Lease for an Initial Hotel, the Operating Partnership terminates
the Lessee's leasehold interest, and the Operating Partnership is unable to
find a replacement lessee for such Initial Hotel within 90 days of such
foreclosure, gross income from hotel operations conducted by the Operating
Partnership from such Initial Hotel would cease to qualify for the 75% and 95%
gross income tests unless the Operating Partnership employs an independent
contractor to manage the Initial Hotel. In such event, the Company likely
would be unable to satisfy the 75% and 95% gross income tests and, thus, would
fail to qualify as a REIT.
Relief Provisions. If the Company fails to satisfy one or both of the 75% or
the 95% gross income tests for any taxable year, it nevertheless may qualify
as a REIT for such year if it is entitled to relief under certain provisions
of the Code. These relief provisions generally will be available if the
Company's failure to meet any such tests was due to reasonable cause and not
due to willful neglect, the Company attaches a schedule of the sources of its
income to its Federal corporate income tax return and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. As discussed in
"--General" above, even if these relief provisions were to apply, a tax would
be imposed with respect to the excess net income.
Asset Tests. The Company must also satisfy three tests relating to the
nature of its assets at the closed of each quarter of its taxable year. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets, including (i) its allocable share of real estate assets
held by the Operating Partnership or any partnerships in which the Operating
Partnership owns an interest and (ii) stock or debt instruments held for not
more than one year purchased with the proceeds of a share offering or long-
term (i.e., at least five-year) public debt offering of the Company), cash,
cash items and government securities. Second, of the investments not included
in the 75% asset class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets. Third,
of the investments not included in the 75% asset class, the Company may not
own more than 10% of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
action within 30 days after the close of any quarter as may be required to
cure any noncompliance.
Annual Distribution Requirements. In order to qualify as a REIT, the Company
is required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (i) the sum of (A) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (B) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. Such distributions must be paid during the taxable
year to which they relate (or during the following taxable year, if declared
before the Company timely files its tax return for the preceding year and paid
on or before the first regular dividend payment after such declaration). To
the extent that the Company does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its "REIT taxable income," as
adjusted, it will be subject to tax on the undistributed amount at regular
corporate capital gains rates and ordinary income tax rates. Furthermore, if
the Company fails to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income of such year, (ii) 95% of its REIT capital
gain net income for such year (other than capital gain that the Company elects
to retain and pay tax on) and
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(iii) any undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such amounts over the amounts
actually distributed. In addition, if the Company disposes of any asset
subject to the Built-In Gain Rule during its Recognition Period, the Company
will be required to distribute at least 95% of the built-in gain (after tax),
if any, recognized on the disposition.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, it is expected that the
Company's REIT taxable income will be less than its cash flow due to the
allowance of depreciation and other noncash charges in the computing of REIT
taxable income. Moreover, the Partnership Agreement of the Operating
Partnership authorizes the Company, as general partner, to take such steps as
may be necessary to cause the Operating Partnership to make distributions to
its partners of amounts sufficient to permit the Company to meet these
distribution requirements. It is possible, however, that the Company, from
time to time, may not have sufficient cash or other liquid assets to meet the
95% distribution requirement due to timing differences between the actual
receipt of income and actual payment of deductible expenses and the inclusion
of such income and deduction of such expenses in arriving at REIT taxable
income of the Company, or due to an excess of nondeductible expenses such as
principal amortization or capital expenditures over noncash deductions such as
depreciation. In the event that such circumstances do occur, then in order to
meet the 95% distribution requirement, the Company may cause the Operating
Partnership to arrange for short-term, or possibly long-term, borrowings to
permit the payment of required dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year that may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends.
However, the Company would be required to pay to the IRS interest based upon
the amount of any deduction taken for deficiency dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and certain relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost and will not be permitted to requalify unless it
distributes any earnings and profits attributable to the period when it failed
to qualify as a REIT. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief. Such a failure to
qualify for taxation as a REIT would reduce the Cash Available for
Distribution by the Company to shareholders and to pay debt service and could
have an adverse effect on the market value and marketability of the Common
Shares.
In any year in which the Company fails to qualify as a REIT, distributions
to shareholders will not be deductible by the Company, nor will the Company be
required to make distributions. If the Company makes distributions, such
distributions will be taxable as ordinary income to the extent of the
Company's current and accumulated earnings and profits. Subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction.
TAXATION OF SHAREHOLDERS
Taxation of Domestic Shareholders. As long as the Company qualifies as a
REIT, distributions made to the Company's taxable domestic shareholders out of
current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and
corporate shareholders will not be eligible for the dividends received
deduction as to such amounts. Distributions that are designated as capital
gain dividends will be taxed as capital gains (to the extent they do not
exceed the Company's actual net capital gain for the taxable year). Depending
upon the period of time that the Company held the assets to which such gains
were attributable, and upon certain designations, if any, which may be made by
the Company, such gains will be taxable to noncorporate domestic shareholders
at a rate of either 20%, 25% or 28%. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and
profits will not be taxable to a
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shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Shares, but rather will reduce the adjusted basis of a
shareholder's Common Shares. To the extent that such distributions exceed the
shareholder's adjusted basis in its Common Shares, they will be included in
income as capital gains (and in the case of a noncorporate domestic
shareholder, long-term capital gains rates will apply if the shares have been
held for more than 18 months, mid term capital gains rates will apply if the
shares have been held for more than one year but not more than 18 months and
short term capital gains rates will apply if the shares have been held for one
year or less), assuming the Common Shares are a capital asset in the hands of
the shareholder.
If the Company elects to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains, the Company would pay tax on such
retained net long-term capital gains at regular corporate tax rates. In
addition, to the extent designated by the Company, a shareholder generally
would (i) include its proportionate share of such undistributed long-term
capital gains in computing its long-term capital gains in its return for its
taxable year in which the last day of the Company's taxable year falls
(subject to certain limitations as to the amount so includible), (ii) be
deemed to have paid the capital gains tax imposed on the Company on the
designated amounts included in such shareholder's long-term capital gains,
(iii) receive a credit or refund for such amount of tax deemed paid by it,
(iv) increase the adjusted basis of its Common Shares by the difference
between the amount of such includible gains and the tax deemed to have been
paid by it, and (v) in the case of a shareholder that is a corporation,
appropriately adjust its earnings and profits for the retained capital gains
in accordance with Treasury Regulations to be prescribed by the IRS.
Any dividend declared by the Company in October, November or December of any
year payable to a shareholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the shareholder
on December 31 of such year, if the dividend is actually paid by the Company
during January of the following calendar year.
Shareholders may not include in their individual income tax returns net
operating losses or capital losses of the Company. In addition, distributions
from the Company and gain from the disposition of Common Shares will not be
treated as "passive activity" income and, therefore, shareholders will not be
able to use passive losses to offset such income.
Upon any sale, exchange or other disposition of Common Shares, a U.S.
shareholder will generally recognize gain or loss for Federal income tax
purposes in an amount equal to the difference between (i) the amount of cash
and the fair market value of any other property received on such sale or other
disposition and (ii) the holder's adjusted tax basis in such Common Shares.
Such gain or loss will be capital gain or loss if the shares have been held by
the shareholder as a capital asset, and, in the case of a noncorporate
domestic shareholder, mid term or long-term rates will apply to gain or loss
if such shares have been held for more than one year or 18 months,
respectively, and the rate of tax on such gains may be reduced for tax years
beginning after December 31, 2000 in certain circumstances. In general, any
loss recognized by a shareholder upon the sale or other disposition of Common
Shares that have been held for six months or less (after applying certain
holding period rules) will be treated as long-term capital loss to the extent
of capital gain dividends received by such shareholder with respect to such
shares.
Backup Withholding. The Company will report to its domestic shareholders and
the IRS the amount of dividends paid during each calendar year and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (ii) provides a taxpayer identification number and certifies as
to no loss of exemption, and otherwise complies with the applicable
requirements of the backup withholdings rules. Any amount paid as backup
withholding will be creditable against the shareholder's income tax liability.
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In addition, the Company may be required to withhold a portion of capital
gain distributions made to any shareholders which fail to certify their non-
foreign status to the Company. See "--Taxation of Foreign Shareholders" below.
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
Taxation of Tax-Exempt Shareholders. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ("UBTI") when received by a tax-exempt
entity. Based on that ruling, the dividend income from the Common Shares will
not be UBTI to a tax-exempt shareholder, provided that a tax-exempt
shareholder has not held its Common Shares as "debt financed property" within
the meaning of the Code and such shares are not otherwise used in a trade or
business. Similarly, income from the sale of Common Shares will not constitute
UBTI unless such tax-exempt shareholder has held such shares as "debt financed
property" within the meaning of the Code or has used the shares in a trade or
business.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code and is tax-exempt under Section 501(a) of the
Code (a "qualified trust") and which holds more than 10% (by value) of the
interests in the REIT. A REIT is a "pension held REIT" if (i) it would not
have qualified as a REIT but for the application of a "look-through" exception
to the "not closely held" requirement applicable to qualified trusts, and (ii)
either (A) at least one such qualified trust holds more than 25% (by value) of
the interests in the REIT, or (B) one or more such qualified trusts, each of
which owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (i)
the gross income (less direct expenses related thereto) of the REIT from
unrelated trades or businesses (determined as if the REIT were a qualified
trust) to (ii) the total gross income (less direct expenses related thereto)
of the REIT. A de minimis exception applies where this percentage is less than
5% for any year. The provisions requiring qualified trusts to treat a portion
of REIT distributions as UBTI will not apply if the REIT is able to satisfy
the "not closely held" requirement without relying upon the "look-through"
exception with respect to qualified trusts. As a result of certain limitations
on transfer and ownership of Common Shares contained in the Declaration of
Trust, the Company does not expect to be classified as a "pension held REIT."
Taxation of Foreign Shareholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships, foreign trusts and estates and other foreign shareholders
(collectively, "Non-U.S. Shareholders") are complex, and no attempt will be
made herein to provide more than a limited summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of U.S. Federal, state and local income tax laws with regard to an
investment in Common Shares, including any reporting requirements.
Ordinary Dividends. Distributions, other than distributions that are treated
as attributable to gain from sales or exchanges by the Company of U.S. real
property interests (discussed below) and other than distributions designated
by the Company as capital gain dividends, will be treated as ordinary income
to the extent that they are made out of current or accumulated earnings and
profits of the Company. Such distributions to foreign shareholders will
ordinarily be subject to a withholding tax equal to 30% of the gross amount of
the distribution, unless an applicable tax treaty reduces that tax rate.
However, if income from the investment in the Common Shares is treated as
effectively connected with the Non-U.S. Shareholder's conduct of a U.S. trade
or business, the Non-U.S. Shareholder generally will be subject to a tax at
graduated rates in the same manner as U.S. shareholders are taxed with respect
to such dividends (and may also be subject to the 30% branch profits tax if
the shareholder is a foreign corporation). In general, a non-U.S. Shareholder
will not be considered to be
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engaged in a U.S. trade or business solely as a result of its ownership of
Common Shares. The Company expects to withhold U.S. income tax at the rate of
30% on the gross amount of any dividends, other than dividends treated as
attributable to gain from sales or exchanges of U.S. real property interests
and capital gain dividends, paid to a Non-U.S. Shareholder, unless (i) a lower
treaty rate applies and the required form evidencing eligibility for that
reduced rate is filed with the Company or (ii) the Non-U.S. Shareholder files
an IRS Form 4224 (or its future equivalent) with the Company claiming that the
distributions are "effectively connected" income.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate.
Return of Capital. Distributions in excess of current and accumulated
earnings and profits of the Company, which are not treated as attributable to
the gain from disposition by the Company of a U.S. real property interest,
will not be taxable to a Non-U.S. Shareholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Shareholder's
Common Shares, they will give rise to tax liability if the Non-U.S.
Shareholder otherwise would be subject to tax on any gain from the sale or
disposition of its Common Shares, as described below. If it cannot be
determined at the time a distribution is made whether such distribution will
be in excess of current and accumulated earnings and profits, the distribution
will be subject to withholding at the rate applicable to dividends. However,
the Non-U.S. Shareholder may seek a refund of such amounts from the IRS if it
is subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
Capital Gain Dividends. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by
the Company of U.S. real property interests will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real Property
Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are
taxed to a Non-U.S. Shareholder as if such gain were effectively connected
with a U.S. business. Thus, Non-U.S. Shareholders will be taxed on such
distributions at the same capital gain rates applicable to U.S. shareholders
(subject to any applicable alternative minimum tax and special alternative
minimum tax in the case of nonresident alien individuals), without regard to
whether such distributions are designated by the Company as capital gain
dividends. Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Shareholder not
entitled to treaty relief or exemption. The Company is required by applicable
Treasury Regulations under FIRPTA to withhold 35% of any distribution that
could be designated by the Company as a capital gain dividend.
Sales of Common Shares. Gain recognized by a Non-U.S. Shareholder upon a
sale or exchange of Common Shares generally will not be taxed under FIRPTA if
the Company is a "domestically controlled REIT," defined generally as a REIT
in respect of which at all times during a specified testing period less than
50% in value of the shares was held directly or indirectly by foreign persons.
It is currently anticipated that the Company will be a "domestically
controlled REIT" and that therefore the sale of Common Shares will not be
subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if (i) investment in the Common Shares is
treated as "effectively connected" with the Non-U.S. Shareholder's U.S. trade
or business, in which case the Non-U.S. Shareholder will be subject to the
same treatment as U.S. shareholders with respect to such gain, or (ii) the
Non-U.S. Shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax
home" in the United States, or maintains an office or a fixed place of
business in the United States to which the gain is attributable, in which case
the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. A similar rule will apply to capital gain
dividends not subject to FIRPTA.
Although the Company anticipates that it will qualify as a domestically
controlled REIT, because the Common Shares will be publicly traded, no
assurance can be given that the Company will continue to so qualify. If the
Company were not a domestically controlled REIT, whether or not a Non-U.S.
Shareholder's sale of Common Shares would be subject to tax under FIRPTA would
depend on whether or not the Common Shares were regularly
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traded on an established securities market (such as the NYSE, on which the
Company has applied for the listing of the Common Shares) and on the size of
the selling Non-U.S. Shareholder's interest in the Company. If the gain on the
sale of Common Shares were to be subject to tax under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as U.S. shareholders with
respect to such gain (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of such Common Shares may be required to withhold 10% of the
gross purchase price.
OTHER TAX CONSIDERATIONS
Effect of Tax Status of Operating Partnership and Other Entities on REIT
Qualification. All of the Company's significant investments are held through
the Operating Partnership. There are special tax considerations with respect
to the Operating Partnership. These tax considerations include: (i)
allocations of income and expense items of the Operating Partnership, which
could affect the computation of taxable income of the Company, (ii) the status
of the Operating Partnership as a partnership or as an entity that is
disregarded as an entity separate from its owners (as opposed to associations
taxable as corporations) for income tax purposes, and (iii) the taking of
actions by the Operating Partnership that could adversely affect the Company's
qualification as REIT.
In the opinion of Brown & Wood llp, based on certain representations of the
Company and the Operating Partnership, for Federal income tax purposes, the
Operating Partnership will be treated as a partnership. If, however, the
Operating Partnership were treated as an association taxable as a corporation,
the Company would fail to qualify as a REIT for a number of reasons.
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for classification as a REIT. In this regard, the Company will control the
operation of the Operating Partnership through its rights as the sole general
partner of the Operating Partnership.
Tax Allocations with Respect to the Properties. When property is contributed
to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax
purposes (i.e., the partnership's basis is equal to the adjusted basis of the
contributing partner in the property), rather than a basis equal to the fair
market value of the property at the time of contribution. Pursuant to Section
704(c) of the Code, income, gain, loss and deductions attributable to such
contributed property must be allocated in a manner such that the contributing
partner is charged with, or benefits from, respectively, the unrealized gain
or unrealized loss associated with the property at the time of the
contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership will be funded by way of contributions of
appreciated property to the Operating Partnership. Consequently, the
Partnership Agreement will require such allocations to be made in a manner
consistent with Section 704(c) of the Code and the regulations thereunder (the
"Section 704(c) Regulations").
The Section 704(c) Regulations require partnerships to use a "reasonable
method" for allocation of items affected by Section 704(c) of the Code and
outline three methods which may be considered reasonable for these purposes.
The Operating Partnership intends to use the "traditional method" of Section
704(c) allocations, which is the least favorable method from the Company's
perspective because of certain technical limitations. Under the traditional
method, depreciation with respect to a contributed property for which there is
a Book-Tax Difference first will be allocated to the Company and other
partners who did not have an interest in such property until they have been
allocated an amount of depreciation equal to what they would have been
allocated if the Operating Partnership had purchased such property for its
fair market value at the time of contribution. In addition, if such a property
is sold, gain equal to the Book-Tax Difference at the time of sale will be
specially allocated to the partner who contributed the property. These
allocations will tend to eliminate the Book-Tax Differences with
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respect to the contributed Initial Hotels over the life of the Operating
Partnership. However, they may not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. This could cause the Company (i) to be allocated
lower amounts of depreciation deduction for tax purposes than would be
allocated to the Company if each of the Initial Hotels were to have a tax
basis equal to its fair market value at the time of contribution and (ii) to
be allocated lower amounts of taxable loss in the event of a sale of such
contributed interests in the Initial Hotels at a book loss, than the economic
or book loss allocated to the Company as a result of such sale, with a
corresponding benefit to the other partners in the Operating Partnership.
These allocations possibly might adversely affect the Company's ability to
comply with REIT distribution requirements, although the Company does not
anticipate that this will occur. These allocations may also affect the
earnings and profits of the Company for purposes of determining the portion of
distributions taxable as a dividend income. See "--Taxation of U.S.
Shareholders". The application of these rules over time may result in a higher
portion of distributions being taxed as dividends than would have occurred had
the Company purchased its interests in the Initial Hotels at their agreed
values.
Interests in the Properties purchased by the Operating Partnership for cash
simultaneously with or subsequent to the admission of the Company to the
Operating Partnership initially will have a tax basis equal to their fair
market value. Thus, Section 704(c) of the Code will not apply to such
interests.
STATE AND LOCAL TAX
The Company and its shareholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the shareholders in such jurisdictions may differ
from the Federal income tax treatment described above.
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UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation,
Legg Mason Wood Walker, Incorporated, Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities LLC and Raymond James & Associates, Inc. are
acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), to purchase from the Company the number of
Common Shares set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ----------
<S> <C>
Prudential Securities Incorporated.............................
Donaldson, Lufkin & Jenrette Securities Corporation............
Legg Mason Wood Walker, Incorporated...........................
Morgan Stanley & Co. Incorporated..............................
NationsBanc Montgomery Securities LLC..........................
Raymond James & Associates, Inc. ..............................
----------
Total...................................................... 14,200,000
==========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the Common Shares offered hereby, if any are purchased.
The Underwriters, through the Representative, have advised the Company that
they propose to offer the Common Shares to the public initially at the public
offering price set forth on the cover page of this Prospectus, and that the
Underwriters may allow to selected dealers a concession of $ per share and
that such dealers may reallow a concession of $ per share to certain other
dealers. After completion of the Offering, the initial public offering price,
and the concessions may be changed by the Representative.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an additional 2,130,000
Common Shares at the initial public offering price, less the underwriting
discounts and commissions as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the Common Shares offered hereby. To
the extent that such option to purchase is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional Common Shares as the number set forth next
to such Underwriter's name in the preceding table bears to 14,200,000.
The Company and the Operating Partnership have agreed to indemnify the
several Underwriters against and contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company, its officers and trustees, the Advisor and the Contributors
have agreed not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any Units or
Common Shares of the Company, or any securities convertible or exercisable or
exchangeable for any Units or Common Shares of the Company (other than
pursuant to the Share Option Plan, the option grant to the Advisor and the
share purchase rights granted to the Contributors), for a period of 180 days
in the case of the Company, and one year in the case of the Company's officers
and Trustees, the Advisor and the Contributors, from the closing of the
Offering, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, subject to certain limited
exceptions. Prudential Securities Incorporated may, in its sole discretion, at
any time and without notice, release all or any portion of the Common Shares
or Units subject to the foregoing lock-up agreements.
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Application has been made to have the Common Shares approved for listing on
the NYSE under the symbol "LHO." In order to meet one of the requirements for
listing the Common Shares on the NYSE, the Underwriters will undertake to sell
(i) lots of 100 or more Common Shares to a minimum of 2,000 beneficial
holders, (ii) a minimum of 1.1 million Common Shares and (iii) Common Shares
with a minimum aggregate market value of $40.0 million.
Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price will be determined through
negotiations between the Company and the Representatives. Among the factors to
be considered in such determination will be prevailing market conditions,
distribution yields and financial characteristics of publicly traded REITs
that the Company and the Representatives believe to be comparable to the
Company, the expected results of operations of the Company (which are based on
the results of operations of the Initial Hotels in recent periods), estimates
of future business potential and earnings prospects of the Company as a whole
and the current state of the hotel industry and the economy as a whole.
The Company will pay to Prudential Securities Incorporated advisory fees
equal, in the aggregate, to 0.75% of the gross proceeds received by the
Company in the Offering, for investment banking services related to, among
other things, the structuring of the Formation Transactions.
An affiliate of Prudential Securities Incorporated will receive a portion of
the net proceeds from the Offering in repayment of the $48.0 million
outstanding under the Bridge Loan.
In connection with the Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Shares. Such Transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M promulgated by the Commission
pursuant to which such persons may bid for or purchase Common Shares for the
purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common
Shares in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase Common Shares in the open
market following completion of the Offering to cover all or a portion of such
short position. The Underwriters may also cover all or a portion of such short
position, up to 2,130,000 Common Shares, by exercising the Underwriters' over-
allotment option referred to above. In addition, Prudential Securities
Incorporated, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or any selling group member participating in the Offering) for
the account of the other Underwriters, the selling concession with respect to
Common Shares that are distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Shares at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph are
required and, if they are undertaken, they may be discontinued at any time.
EXPERTS
The balance sheet of LaSalle Hotel Properties as of January 15, 1998, the
combined balance sheets of the Initial Hotels (excluding the LaGuardia Airport
Marriott) as of December 31, 1996 and 1997 and related statements of
operations, changes in partners' capital, and cash flows for each of the years
in the three-year period ended December 31, 1997, the statements of revenues
and expenses and cash flows of Omaha Marriott Hotel for the period from
December 29, 1995 to December 19, 1996, the balance sheet of Rahn Key West
Resort, Inc. as of December 31, 1996 and the related statements of operations,
stockholders' deficit, and cash flows for the year ended December 31, 1996,
the statements of revenues and expenses and cash flows of the Le Meridien
Dallas
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for the year ended January 31, 1997 and the period from February 1, 1997 to
September 4, 1997, the balance sheet of MSCC Limited Partnership as of
December 29, 1995 and related statements of operations, changes in partners'
capital (deficit), and cash flows for the fiscal year ended December 29, 1995,
the statements of revenues and expenses and cash flows of Marriotts Seaview
Resort for the period from January 4, 1997 to November 7, 1997, and the
balance sheets of LaGuardia Airport Marriott as of December 31, 1995 and 1996
and the related statements of operations, changes in owners' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996
have been included herein and in the Registration Statement in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
The financial statements of Canal Street Hotels Limited Partnership as of
and for the years ending December 31, 1995 and 1996, included in this
Prospectus and elsewhere is the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The financial statements of Rahn Key West Resort, Inc. as of and for the
year ended December 31, 1995, included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The balance sheet of MSCC Limited Partnership as of January 3, 1997, and the
related statements of income, changes in partners' capital (deficit) and cash
flows for the fiscal year ended January 3, 1997, included in this registration
statement, have been included herein in reliance on the report of Coopers &
Lybrand LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Shares and certain tax matters will be passed
upon for the Company by Brown & Wood llp. In addition, the description of
Federal income tax consequences under the heading "Federal Income Tax
Consequences" is based upon the opinion of Brown & Wood llp. Certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Skadden, Arps, Slate, Meagher & Flom
LLP may rely on the opinion of Brown & Wood llp as to certain matters of
Maryland law.
ADDITIONAL INFORMATION
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the year 2000 from the
year 1900 (commonly known as the "Year 2000 Problem"). Like other
organizations, the Company could be adversely affected if the computer systems
used by it or service providers do not properly address this problem prior to
January 1, 2000. Currently, the Company does not anticipate that the
transition to the 21st century will have any material impact on its
performance. In addition, the Company has sought assurances from the Lessees
and other service providers that they are taking all necessary steps to ensure
that their computer systems will accurately reflect the year 2000, and the
Company will continue to monitor the situation. At this time, however, no
assurance can be given that the Company's other service providers have
anticipated every step necessary to avoid any adverse effects on the Company
attributable to the Year 2000 Problem.
The Company has filed with the Commission a Registration Statement on Form
S-11 (of which this Prospectus is a part) under the Securities Act with
respect to the securities offered hereby. This Prospectus does not contain all
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such
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statement is qualified in all respects by such reference and the exhibits and
schedules hereto. For further information regarding the Company and the Common
Shares offered hereby, reference is hereby made to the Registration Statement
and such exhibits and schedules, which may be obtained from the Commission as
its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees prescribed by the Commission. The Commission maintains a
website at http:/www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. In addition, the Company intends
to file an application to list the Common Shares on the New York Stock
Exchange and, if the Common Shares are listed on the New York Stock Exchange,
similar information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company intends to furnish its shareholders with annual reports
containing audited combined financial statements and a report thereon by
independent certified public accountants.
118
<PAGE>
GLOSSARY OF SELECTED TERMS
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:
"ACMs" means asbestos containing materials.
"Act" means the Delaware Revised Uniform Limited Partnership Act.
"ADA" means the Americans with Disabilities Act, as amended.
"Additional Charges" means certain unspecified amounts, including interest
accrued on any late payments or charges.
"ADR" means average daily room rate.
"Adjusted Basis Ratio" means the average of the aggregate adjusted bases of
both the real and personal property comprising the Initial Hotel at the
beginning and at the end of such taxable year.
"Advisor" means LaSalle Hotel Advisors Inc., a wholly owned subsidiary of
LaSalle that will manage and advise the Company.
"Available Cash" is generally defined as net income plus any reduction in
reserves and minus interest and principal payments on debt, capital
expenditures, any additions to reserves and other adjustments.
"Book-Tax Difference" means the difference between the fair market value of
a contributed property at the time of contribution and the adjusted tax basis
of such property at the time of contribution.
"Built-In Gain Rule" To the extent of a property's "built-in" gain (the
excess of the fair market value of a property at the time of acquisition by
the Company over the adjusted basis in such property at such time), such gain
will be subject to tax at the highest regular corporate rate applicable
pursuant to Treasury Regulations that have not yet been promulgated.
"Business Combination" means a merger, consolidation or other combination
with or into another person or sale of all or substantially all of its assets,
or any reclassification, or any recapitalization or change of outstanding
Common Shares.
"Bylaws" means the Company's bylaws, as supplemented or amended.
"Cargill" means Cargill Financial Services Corporation and certain of its
affiliates, collectively.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the Company's common shares of beneficial interest,
$.01 par value per share.
"Company" means LaSalle Hotel Properties, a Maryland real estate investment
trust, and one or more of its subsidiaries (including the Operating
Partnership), and the predecessors thereof or, as the context may require,
LaSalle Hotel Properties only or the Operating Partnership only.
"Contributors" means LaSalle, Steinhardt, Cargill, Durbin, OLS and Radisson.
"CPI" means the "Consumer Price Index" published by the Bureau of Labor
Statistics of the United States of America Department of Labor, U.S. City
Average, All Items for Urban Wage Earners and Clerical Workers (1982-1984-
100).
G-1
<PAGE>
"Declaration of Trust" means the Company's declaration of trust as
supplemented or amended.
"Durbin" means Durbin Companies, Inc. and certain of its affiliates,
collectively.
"Excess Shares" means the separate class of shares of the Company into which
shares of the Company owned, or deemed to be owned, or transferred to a
shareholder in excess of the Ownership Limit will automatically be converted.
"FF&E" means furniture, fixtures and equipment.
"FFO" means Funds from Operations as defined by the National Association of
Real Estate Investment Trusts, represents net income applicable to common
shareholders (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from debt restructuring and sales of
property (including furniture and equipment), plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs), and after adjustments for unconsolidated partnerships and joint
ventures.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Formation Transactions" means the transactions described in "Structure and
Formation of the Company."
"Funds from Operations" has the same meaning as "FFO" above.
"GAAP" means generally accepted accounting principles.
"Initial Hotels" means the ten full service hotels owned by the Company upon
completion of the Offering.
"Interested Shareholder" means, with respect to the business combination
provisions of the MGCL, any person who beneficially owns 10% or more of the
voting power of a corporation's shares.
"IRS" means the United States Internal Revenue Service.
"LaSalle" means LaSalle Partners Incorporated, and certain of its
affiliates, collectively.
"Lessees" means the lessees of the Initial Hotels.
"Line of Credit" means the revolving credit facility which the Company
expects to enter into concurrently with the completion of the Offering with
Societe Generale, Southwest Agency and The Bank of Montreal to facilitate
acquisitions of properties and for working capital purposes.
"Measurement Year" means each calendar year.
"MGCL" means the Maryland General Corporation Law.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NOI" means net operating income of the Company calculated before the
payment of any fees to the Advisor.
"NYSE" means the New York Stock Exchange.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.
"Offering" means this offering of Common Shares of the Company pursuant to
and as described in this Prospectus.
G-2
<PAGE>
"OLS" means Outrigger Lodging Services and certain of its affiliates,
collectively.
"Operating Partnership" means LaSalle Hotel Operating Partnership, L.P., a
Delaware limited partnership.
"Operators" means the independent operators managing the Initial Hotels.
"Ownership Limit" means the restriction contained in the Company's
Declaration of Trust providing that, subject to certain exceptions, no holder
may own, or be deemed to own by virtue of the attribution provision of the
Code, more than 9.8% of the aggregate number or value of Common Shares of the
Company.
"Parent Entity" means an entity whose stock is publicly traded and which
owns more than 50% of the capital shares of the Company.
"Participating Leases" mean the leases pursuant to which the Operating
Partnership leases the Initial Hotels to the Lessees.
"Partnership Agreement" means the Agreement of Limited Partnership of the
Operating Partnership, as amended from time to time.
"PCBs" means polychlorinated biphenyls.
"Preferred Shares" means one or more classes of Preferred Shares of the
Company as designated and issued by the Board of Trustees from time to time.
"Radisson" means Radisson Group, Inc. and certain of its affiliates,
collectively.
"REIT" means a real estate investment trust as defined by Sections 856
through 860 of the Code and applicable Treasury Regulations.
"Related Party Tenant" means, for purposes of determining whether rents
received by the Company will qualify as "rents from real property" for
satisfying the gross income requirements for a REIT, a tenant in which the
Company, or an owner of 10% or more of the Company, directly or constructively
has at least a 10% ownership interest.
"REVPAR" means room revenue per available room.
"Section 704(c) Regulations" means the regulations promulgated by the IRS
under Section 704(c) of the Code.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the Preferred Shares together with the Common Shares.
"Steinhardt" means Steinhardt Group Inc. and certain of its affiliates,
collectively.
"Treasury Regulations" means the regulations promulgated by the IRS under
the Code.
"UBTI" means unrelated business taxable income.
"Underwriters" means the underwriters of the Offering, for whom Prudential
Securities Incorporated is acting as representative.
"Units" means units of partnership interest in the Operating Partnership.
"UPREIT" means a REIT conducting business through a partnership.
G-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
LASALLE HOTEL PROPERTIES
Pro Forma (Unaudited)
Condensed Consolidated Statement of Income for the year ended December
31, 1997............................................................. F-3
Notes to Pro Forma Consolidated Condensed Statement of Income......... F-4
Condensed Consolidated Balance Sheet as of December 31, 1997.......... F-7
Notes to Pro Forma Condensed Consolidated Balance Sheet............... F-8
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-11
Balance Sheet as of January 15, 1998.................................. F-12
Notes to Balance Sheet................................................ F-13
AFFILIATED LESSEE
Pro Forma (Unaudited)
Condensed Statement of Operations for the year ended December 31,
1997................................................................. F-15
Notes to Pro Forma Condensed Statement of Operations.................. F-16
Condensed Balance Sheet as of December 31, 1997....................... F-17
Notes to Pro Forma Condensed Balance Sheet............................ F-18
LE MERIDIEN LESSEE
Pro Forma (Unaudited)
Condensed Statement of Operations for the year ended December 31,
1997................................................................. F-19
Notes to Pro Forma Condensed Statement of Operations ................. F-20
Condensed Balance Sheet as of December 31, 1997....................... F-21
Notes to Pro Forma Condensed Balance Sheet............................ F-22
INITIAL HOTELS (EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-23
Combined Balance Sheets as of December 31, 1996 and 1997.............. F-24
Combined Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................................. F-25
Combined Statements of Changes in Partners' Capital for the years
ended December 31, 1995, 1996 and 1997............................... F-26
Combined Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................................. F-27
Notes to Combined Financial Statements................................ F-28
OMAHA MARRIOTT HOTEL
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-37
Statement of Revenues and Expenses for the period from December 30,
1995 to December 19, 1996............................................ F-38
Statement of Cash Flows for the period from December 30, 1995 to
December 19, 1996.................................................... F-39
Notes to Financial Statements......................................... F-40
RAHN KEY WEST RESORT, INC.
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-42
Balance Sheet as of December 31, 1996................................. F-43
Statements of Operations for the year ended December 31, 1996 and the
six months ended June 30, 1997 (unaudited)........................... F-45
Statements of Stockholders' Deficit for the year ended December 31,
1996 and the six months ended June 30, 1997 (unaudited).............. F-46
Statements of Cash Flows for the year ended December 31, 1996 and the
six months ended June 30, 1997 (unaudited)........................... F-47
Notes to Financial Statements......................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
RAHN KEY WEST RESORT, INC.
Historical
Report of Independent Public Accountants--Deloitte & Touche llp....... F-52
Balance Sheet as of December 31, 1995................................. F-53
Statement of Operations for the year ended December 31, 1995.......... F-55
Statement of Stockholders' Deficit for the year ended December 31,
1995................................................................. F-56
Statement of Cash Flows for the year ended December 31, 1995.......... F-57
Notes to Financial Statements......................................... F-58
LE MERIDIEN DALLAS
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-61
Statements of Revenues and Expenses for the year ended January 31,
1997 and the period from February 1, 1997 to September 4, 1997....... F-62
Statements of Cash Flows for the year ended January 31, 1997 and
period from February 1, 1997 to September 4, 1997.................... F-63
Notes to Financial Statements......................................... F-64
CANAL STREET HOTELS LIMITED PARTNERSHIP (LE MERIDIEN NEW ORLEANS)
Historical
Report of Independent Public Accountants--Arthur Andersen LLP......... F-65
Balance Sheets as of December 31, 1996 and 1995....................... F-66
Statements of Operations for the years ended December 31, 1996 and
1995................................................................. F-67
Statements of Changes in Partners' Equity (Deficit) for the years
ended December 31, 1996 and 1995..................................... F-68
Statements of Cash Flows for the years ended December 31, 1996 and
1995................................................................. F-69
Notes to Financial Statements......................................... F-70
MSCC LIMITED PARTNERSHIP (MARRIOTT'S SEAVIEW RESORT)
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-74
Report of Independent Public Accountants--Coopers & Lybrand LLP....... F-75
Balance Sheets as of December 29, 1995 and January 3, 1997 ........... F-76
Statements of Operations for the years ended December 29, 1995 and
January 3, 1997 ..................................................... F-77
Statements of Partners' Capital (Deficit) for the years ended December
29, 1995 and January 3, 1997......................................... F-78
Statements of Cash Flows for the years ended December 29, 1995 and
January 3, 1997...................................................... F-79
Notes to Financial Statements......................................... F-80
MARRIOTT'S SEAVIEW RESORT
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-84
Statement of Revenues and Expenses for the period from January 4, 1997
to November 7, 1997.................................................. F-85
Statement of Cash Flows for the period from January 4, 1997 to
November 7, 1997..................................................... F-86
Notes to Financial Statements......................................... F-87
LAGUARDIA AIRPORT MARRIOTT
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP....... F-89
Balance Sheets as of December 31, 1995 and 1996....................... F-90
Statements of Operations for the years ended December 31, 1994, 1995,
and 1996 and the nine months ended September 30, 1996 and 1997
(unaudited).......................................................... F-91
Statements of Owners' Equity for the years ended December 31, 1994,
1995, and 1996 and the nine months ended September 30, 1997
(unaudited).......................................................... F-92
Statements of Cash Flows for the years ended December 31, 1994, 1995,
and 1996 and the nine months ended September 30, 1996 and 1997
(unaudited).......................................................... F-93
Notes to Financial Statements......................................... F-94
</TABLE>
F-2
<PAGE>
LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Company's unaudited Pro Forma Condensed Consolidated Statement of Income
for the year ended December 31, 1997 is presented as if (1) the consummation
of the Offering, the related Formation Transactions and the funding of the
Line of Credit (2) the acquisition of the Initial Hotels (excluding the
LaGuardia Airport Marriott), (3) the acquisition of the LaGuardia Airport
Marriott, and (4) the application of the net proceeds of the Offering had
occurred on January 1, 1997 and the Initial Hotels had been leased pursuant to
the Participating Leases as of that date and carried forward through December
31, 1997. Information should be read in conjunction with the Pro Forma
Statements of Income of the Affiliated Lessee and the Le Meridien Lessee, and
the Combined Financial Statements of the Initial Hotels (excluding the
LaGuardia Airport Marriott) listed in the Index to Financial Statements
included in this Prospectus. In management's opinion, all adjustments
necessary to reflect the effects of the Formation Transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Income are not necessarily indicative of what actual results of operations of
the Company would have been assuming such transactions had been completed as
of the beginning of the period presented, nor do they purport to represent the
results of operations for future periods.
F-3
<PAGE>
LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
LAGUARDIA
AIRPORT
INITIAL HOTELS MARRIOTT OTHER PRO FORMA
-------------- --------- ----- ---------
<S> <C> <C> <C> <C>
REVENUES:
Participating Lease revenue (A):
Affiliated Lessee.................. 10,697 6,282 -- 16,979
Other Lessees...................... 29,364 -- -- 29,364
------ ----- ----- -------
Total revenues.................... 40,061 6,282 -- 46,343
------ ----- ----- -------
EXPENSES:
Depreciation........................ 14,884 1,898 -- 16,782(B)
Real estate and personal property
taxes, property and casualty
insurance.......................... 4,780 1,403 -- 6,183(C)
General and administrative.......... -- -- 700 700(D)
Interest............................ -- -- 3,453 3,453(E)
Advisory Fees....................... -- -- 2,343 2,343(F)
Other............................... -- -- 414 414
------ ----- ----- -------
Expenses before minority interest. 19,664 3,301 6,910 29,875
Minority interest................... 2,865(G)
-------
Total expenses and minority
interest......................... 32,740
-------
Net income applicable to common
shareholders....................... 13,603
=======
Basic and diluted net income per
common share....................... $ .90
=======
Weighted average number of Common
Shares outstanding................. 15,112
=======
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statement of Income.
F-4
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(A) Represents lease payments from the Initial Lessees calculated on a pro
forma basis by applying the rent provisions of the Participating Leases to the
pro forma revenues of the Initial Hotels. These pro forma revenues were
calculated using historical revenues of the Initial Hotels as though the
hotels were acquired January 1, 1997 and leased pursuant to the Participating
Leases since that date. See "The Initial Hotels--The Participating Leases" for
the Participating Lease formulas and calculation of Participating Lease
Revenue. The Company believes that the proposed changes in ownership of the
Initial Hotels described in the Formation Transactions will not have a
significant effect on the operations of the Initial Hotels.
Revenue is recognized as earned on an accrual basis.
(B) Represents depreciation of the Initial Hotels. Depreciation is computed
using the straight-line method and is based upon the estimated useful lives of
25 to 39 years for buildings and improvements and five years for furniture and
equipment. These estimated useful lives are based on management's knowledge of
the properties and the hotel industry in general.
The company's pro forma investment in hotel properties at cost consists of
the following:
<TABLE>
<CAPTION>
LAGUARDIA
INITIAL AIRPORT
HOTELS MARRIOTT TOTAL
-------- --------- --------
<S> <C> <C> <C>
Land.......................................... $ 49,981 $ 9,108 $ 59,089
Buildings and improvements.................... 220,019 31,879 251,898
Furniture and equipment....................... 37,370 4,554 41,924
-------- ------- --------
TOTAL....................................... $307,370 $45,541 $352,911
======== ======= ========
</TABLE>
(C) Represents real estate and personal property taxes, property and
casualty insurance to be paid by the Company. Such amounts were derived from
historical amounts paid by the Initial Hotels.
(D) Represents annual general and administrative expenses to be paid or
reimbursed to the Company by the operating partnership as follows:
<TABLE>
<CAPTION>
ANNUAL
------
<S> <C>
Professional fees................................... $230
Directors and officers insurance.................... 205
Directors' fees and expenses........................ 150
Other expenses...................................... 115
----
TOTAL............................................. $700
====
</TABLE>
(E) The Company has obtained a commitment for an unsecured $200 million
revolving credit facility with a variable rate based on LIBOR. Interest
expense is calculated based on (i) the terms of the agreement (7.2% at
offering date) assuming $40,324 of pro forma borrowings against the Line of
Credit in connection with the completion of the Formation Transactions, and
(ii) amortization of debt issuance costs associated with the Line of Credit
over its term.
F-5
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)
(UNAUDITED, DOLLARS AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(F) Represents Advisory Fees to be paid to the Advisor for management,
advisory and administrative services to be provided to the Company. The
Advisor will receive an annual base fee up to 5% of the Company's net
operating income and an annual incentive fee which prior to January 1, 1999
will be limited to 1% of the Company's net operating income calculated as
follows:
<TABLE>
<S> <C>
Net Operating Income............................................ $39,046
6%
-------
2,343
Less: Base Advisory Fee calculated as 5% of net operating
income......................................................... (1,952)
-------
Incentive Advisory Fee.......................................... $ 391
=======
</TABLE>
See "REIT Management" for the terms of the Advisory Agreement subsequent to
January 1, 1999.
(G) Minority interest represents the interest in the Operating Partnership
that will not be owned by the Company and is calculated at 17.4% of the Pro
Forma net income of the Operating Partnership.
F-6
<PAGE>
LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the (1) acquisition of the Initial Hotels (excluding the LaGuardia Airport
Marriott), (2) the acquisition of the LaGuardia Airport Marriott and (3)
consummation of the Offering and the Formation Transactions and the
application of the net proceeds therefrom had occurred on December 31, 1997.
Such pro forma information is based in part upon the financial statements
included in this Prospectus. In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been made.
This unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming such transactions had been completed as of December 31, 1997, nor
does it purport to represent the future financial position of the Company.
F-7
<PAGE>
LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------
(A) (B) (B) (C) PURCHASE TOTAL
HISTORICAL BRIDGE CARGILL LAGUARDIA ACCOUNTING PRO FORMA
INITIAL HOTELS LOAN ACQUISITION ACQUISITION ADJUSTMENT OTHER ADJUSTMENTS PRO FORMA
-------------- ------- ----------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in hotel
properties, net....... $222,266 $ -- $ -- $45,541 $85,104 $ -- $ 130,645 $352,911 (D)
Investment in
Affiliated Lessee..... -- -- -- -- -- 17 17 17 (E)
Cash and cash
equivalents........... 6,874 48,000 (48,000) (46,041) -- 40,167 (5,874)(F) 1,000
Accounts receivable,
net................... 5,300 -- -- -- -- (5,300) (5,300)(G) --
Inventories, prepaid
expenses and other
assets................ 3,224 -- -- -- -- (3,224) (3,224)(G) --
Deferred charges....... 1,974 -- -- -- -- (324) (324)(H) 1,650
Restricted cash
reserves.............. 11,884 -- -- 500 -- (2,459) (1,959) 9,925
-------- ------- -------- ------- ------- --------- --------- --------
Total Assets.......... $251,522 $48,000 $(48,000) $ -- $85,104 $ 28,877 $ 113,981 $365,503
======== ======= ======== ======= ======= ========= ========= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Mortgage notes payable. $168,611 $48,000 $(17,151) $ -- $ -- $(199,460) $(168,611)(I) $ --
Borrowings against Line
of Credit............. -- -- -- -- -- 40,324 40,324 (J) 40,324 (J)
Accounts payable,
accrued expenses and
other liabilities..... 11,527 -- -- -- -- (11,527) (11,527)(G) --
Minority interest in
partnership........... -- -- -- -- -- 56,581 56.581 (K) 56,581 (K)
-------- ------- -------- ------- ------- --------- --------- --------
Total Liabilities..... 180,138 48,000 (17,151) -- -- (114,082) (83,233) 96,905
SHAREHOLDERS' EQUITY
Common shares.......... -- -- -- -- -- 151 151 (L) 151 (L)
Additional paid-in
capital............... -- -- -- -- 85,104 186,664 271,768 271,768 (M)
Retained earnings
(deficit)............. 71,384 -- (30,849) -- -- (43,856) (74,705) (3,321)(N)
-------- ------- -------- ------- ------- --------- --------- --------
Total Shareholders'
Equity............... 71,384 -- (30,849) -- 85,104 142,959 197,214 268,598
-------- ------- -------- ------- ------- --------- --------- --------
Total Liabilities &
Shareholders' Equity. $251,522 $48,000 $(48,000) $ -- $85,104 $ 28,877 $ 113,981 $365,503
======== ======= ======== ======= ======= ========= ========= ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Balance Sheet.
F-8
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(A) Reflects the historical combined balance sheets of the Initial Hotels
(excluding the LaGuardia Airport Marriott), as of December 31, 1997.
(B) Represents the proceeds of the Bridge Loan used to purchase the
interests of Cargill in three of the Initial Hotels and to repay outstanding
mortgage and other indebtedness on such hotels. Amounts outstanding under the
Bridge Loan will be repaid with Offering Proceeds.
(C) Represents the purchase of the LaGuardia Airport Marriott.
(D) The investment in hotel properties represents the acquisition of the
Initial Hotels from certain Existing Partnerships which is accounted for as a
purchase transaction. The Existing Partnership that retained the largest
number and percentage of voting rights of the Company after the formation
translations was designated the acquirer for accounting purposes. The purchase
price of the Initial Hotels has been allocated to specific hotels based upon
the percentage of each hotels 1997 net operating income as a percentage of the
total net operating income of the Initial Hotels. The purchase price was
calculated as follows:
<TABLE>
<S> <C> <C>
Cash purchase price paid to contributors...... $ 47,232 (i)
Fair value of approximately 3,182 units
issued....................................... 63,635 (ii)
Fair value of approximately 912 shares
issued....................................... 18,242 (iii)
Fair value of approximately 1,281 rights and
options issued to purchase Shares............ 3,676 (iv)
Retirement of mortgage notes payable (See Note
I)........................................... 199,010 (v)
Acquisition of LaGuardia Airport Marriott..... 45,541 (xiii)
Adjustment required to reflect the accounting
acquirer's basis at historical cost.......... (17,773)(xiv)
Transfer taxes and other direct costs of
acquisition.................................. 1,173 (vi)
Restricted cash reserves required............. (9,925)
Transfer to restricted cash reserves from
Offering Proceeds............................ 2,100 (vi)
------
Restricted cash reserves of Initial Hotels
acquired in Formation Transactions........... (7,825)
--------
Purchase price of Initial Hotels.............. $352,911
========
</TABLE>
In connection with the acquisition of the Initial Hotels, the Company issued
approximately 3,182 Units and approximately 1,281 rights and options to
acquire Common Shares. The estimated fair value of the Units issued is $20 per
unit. The estimated fair value of the rights and options issued is
approximately $2.87 per right or option and was estimated using the Black-
Scholes pricing model assuming a dividend yield of 7.5%, an anticipated life
of 10 years, and an expected volatility of approximately 20%.
(E) Represents a 9% investment in the Affiliated Lessee accounted for under
the equity method.
(F) Net decrease in cash reflects the following proposed transactions:
<TABLE>
<S> <C>
Gross proceeds of the Offering........................... $ 284,000 (vii)
Expenses of the Offering................................. (19,880)(viii)
Proceeds from borrowing against Line of Credit........... 40,324
Debt issuance costs related to the Line of Credit (See
Note H)................................................. (1,650)
Acquisition of LaGuardia Airport Marriott................ (45,541)(xiii)
Retirement of mortgage notes payable (See note I)........ (199,010)(v)
Prepayment penalties on retirement of mortgage notes
payable (See Note N).................................... (3,321)
Cash purchase price of Initial Hotel acquisitions........ (47,232)(i)
Other Offering costs..................................... (3,400)(xii)
Spin-off of cash to Lessees (See Note G)................. (3,280)
Transfer to restricted cash reserves from Offering
Proceeds................................................ (2,100)(vi)
Partner distributions prior to Formation Transactions.... (3,144)
Investment in Affiliated Lessee.......................... (17)
Payment of transfer taxes and other direct costs of
acquiring Initial Hotels................................ (1,173)(vi)
Other.................................................... (450)(ix)
---------
Net decrease to cash................................... $ (5,874)
=========
</TABLE>
F-9
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(CONTINUED)
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(G) Decrease reflects assets and liabilities of the Initial Hotels and
LaGuardia Airport Marriott which are not being purchased.
(H) Decrease reflects writeoff of deferred financing costs of $1,974 in
conjunction with the repayment of mortgage notes secured by the Initial Hotels
and $1,650 of debt issuance costs incurred related to the Line of Credit.
(I) Decrease reflects the repayment of historical mortgage notes with
proceeds from the Offering as follows:
<TABLE>
<S> <C>
Mortgage notes payable of Initial Hotels (excluding the
LaGuardia Airport Marriott)................................ $168,611
Bridge Loan related to Cargill acquisition.................. 48,000
Less retirement of mortgage notes with proceeds from Bridge
loan....................................................... (17,151)
--------
199,460
Less principal amortization of mortgage notes payable from
January 1, 1998 to date of retirement...................... (450)(ix)
--------
$199,010(v)
========
</TABLE>
(J) The Company has obtained a commitment for an unsecured $200 million
revolving credit facility. The adjustment represents borrowings under the Line
of Credit of $40,324.
(K) Represents the recognition of minority interest in the Operating
Partnership that will not be owned by the Company.
The manner in which the value assigned to minority interest was determined
is as follows:
<TABLE>
<S> <C>
Total equity.................................................. $325,179
Minority interest percentage.................................. 17.4%
--------
$ 56,581(x)
========
</TABLE>
(L) Issuance of 15,112,000 common shares at $0.01 par value.
151(xi)
(M) Balance reflects the following:
<TABLE>
<S> <C>
Gross proceeds of the Offering............................ $284,000 (vii)
Expenses of the Offering.................................. (19,880)(viii)
Other Offering costs...................................... (3,400)(xii)
Transfer of balance of common shares...................... (151)(xi)
Recognition of minority interest.......................... (56,581)(x)
Fair value of approximately 912 shares issued............. 18,242 (iii)
Fair value of approximately 3,182 units issued............ 63,635 (ii)
Fair value of approximately 1,281 rights and options is-
sued..................................................... 3,676 (iv)
Adjustment required to reflect the accounting acquirer's
basis at historical cost................................. (17,773)(xiv)
--------
$271,768
========
</TABLE>
(N) Balance represents prepayment penalties of $3,321.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Trustees
LaSalle Hotel Properties:
We have audited the accompanying balance sheet of LaSalle Hotel Properties
(the Company) as of January 15, 1998 (date of formation). This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. An audit of a balance sheet also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of LaSalle Hotel Properties as of
January 15, 1998 (date of formation), in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 16, 1998
F-11
<PAGE>
LASALLE HOTEL PROPERTIES
BALANCE SHEET
JANUARY 15, 1998
<TABLE>
<S> <C>
ASSETS
Cash.................................................................... $1,000
======
SHAREHOLDERS' EQUITY
Preferred shares, $.01 par value; 20,000,000 shares authorized; no
shares issued and outstanding.......................................... --
Common shares, $.01 par value; 100,000,000 shares authorized; 100 shares
issued and outstanding................................................. 1
Additional paid-in capital.............................................. 999
------
Total shareholders' equity............................................ $1,000
======
</TABLE>
See accompanying notes to balance sheet.
F-12
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO BALANCE SHEET
JANUARY 15, 1998
(1) ORGANIZATION
LaSalle Hotel Properties (the Company) was formed on January 15, 1998 to own
hotel properties and to continue and expand the hotel investment activities of
LaSalle Partners Incorporated and certain of its affiliates (collectively
LaSalle). The Company will be managed and advised by LaSalle Hotel Advisors
Inc. (the Advisor), a wholly owned subsidiary of LaSalle. The Company intends
to qualify as a real estate investment trust (REIT) and complete an initial
public offering (the Offering). Upon completion of the Offering, the Company
will own, through an approximate 82.6% interest in an Operating Partnership
(the Operating Partnership), interests in ten upscale and luxury full service
hotels (the Initial Hotels). All of the Initial Hotels will be leased under
participating leases (Participating Leases) which provide for rent based on
hotel revenues and will be managed by independent hotel operators (Hotel
Operators).
The Initial Hotels are currently owned by various limited and general
partnerships (the Partnerships) in which LaSalle is the general partner. It is
the intent of LaSalle and its limited and other general partners to contribute
their respective interests in the Initial Hotels in exchange for shares of the
REIT or units of the Operating Partnership.
In the event the Offering is not completed, 40% of the offering costs
incurred will be borne by LaSalle and the remaining amounts will be borne by
LaSalle's partners or the Partnerships on behalf of the Company.
The Initial Hotels consist of the following:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTY NAME LOCATION ROOMS
------------- -------- ---------
<S> <C> <C>
Le Montrose All Suite De Gran Luxe....... West Hollywood, CA 128
Holiday Inn Plaza Park................... Visalia, CA 257
Radisson Tampa East (formerly the
Camberly Plaza Sabal Park Hotel)........ Tampa, FL 265
Radisson Hotel South and Conference
Center.................................. Bloomington, MN 580
Omaha Marriott Hotel..................... Omaha, NE 301
Le Meridien New Orleans Hotel............ New Orleans, LA 494
Key West Holiday Inn Beachside Resort.... Key West, FL 222
Le Meridien Dallas Hotel................. Dallas, TX 396
Marriott's Seaview Resort................ Galloway, NJ 300
</TABLE>
The LaGuardia Airport Marriott is expected to be acquired contemporaneously
with the closing of the Offering or shortly thereafter.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Acquisition of Initial Hotels
The acquisitions of the Initial Hotels discussed in note 1 will be accounted
for as purchase transactions.
Distributions
The Company intends to pay regular quarterly distributions to its
shareholders as directed by the Board of Trustees. The Company's ability to
pay distributions will be dependent on the receipt of distributions from the
Operating Partnership.
Income Taxes
The Company intends to qualify as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986. A REIT will generally not be subject to
federal income taxation on that portion of its income that qualifies as REIT
taxable income to the extent that it distributes at least 95% of its taxable
income to its shareholders and complies with certain other requirements.
F-13
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO BALANCE SHEET--(CONTINUED)
(3) DESCRIPTION OF CAPITAL STRUCTURE
Common Shares
The Board of Trustees is authorized to reclassify any unissued Common Shares
into other classes or series of classes and to establish the number of shares
in each class and to set the preferences for each. At January 15, 1998, 100
Common Shares are issued and outstanding to LaSalle Partners, Inc., an
affiliate of the Advisor.
Preferred Shares
The Board of Trustees is authorized to classify any unissued Preferred
Shares and to reclassify any previously classified but unissued Preferred
Shares of any series. No Preferred Shares are outstanding as of January 15,
1998.
(4) REVOLVING LINE OF CREDIT (UNAUDITED)
The Company expects to obtain a commitment for an unsecured $200 million
line of credit which is intended to fund future acquisitions, renovations, and
expansions of hotel properties and for working capital.
(5) ADVISORY AGREEMENT (UNAUDITED)
The Company expects to enter into an advisory agreement with the Advisor.
The advisory agreement is expected to provide for payment of an annual base
fee and an annual incentive advisory fee equal to 25% of the increase in funds
from operations (as defined) up to 6% of net operating income (as defined).
(6) SHARE OPTION AND INCENTIVE PLAN (UNAUDITED)
Prior to the Offering, the Board of Trustees will adopt, and the
shareholders will approve the 1998 Share Option and Incentive Plan (the "Share
Option Plan"). On and after the closing of the Offering, the Share Option Plan
will be administered by the Compensation Committee of the Board of Trustees.
The Advisor and its employees and operators of the Company's hotels and their
employees generally will be eligible to participate in the Share Option Plan.
Independent Trustees are eligible to receive options to purchase Common Shares
under the Share Option Plan on a limited basis.
Any options granted to the Advisor under the Share Option Plan are expected
to be recorded at fair value in accordance with FASB Statement No. 123
Accounting for Stock-Based Compensation.
F-14
<PAGE>
AFFILIATED LESSEE
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Affiliated Lessee's unaudited Pro Forma Condensed Statement of
Operations for the year ended December 31, 1997 are presented as if the
formation of the Affiliated Lessee had occurred on January 1, 1997, and the
related hotels had been leased by the Affiliated Lessee pursuant to the
Participating Leases as of that date and carried forward through December 31,
1997. Information should be read in conjunction with the Pro Forma Statements
of Income of LaSalle Hotel Properties and the Financial Statements listed in
the Index to Financial Statements included in this Prospectus. In management's
opinion, all adjustments necessary to reflect the effects of the Formation
Transactions have been made.
The following unaudited Pro Forma Condensed Statement of Operations are not
necessarily indicative of what actual results of operations of the Affiliated
Lessee would have been assuming such transactions had been completed as of the
beginning of the period presented, nor do they purport to represent the
results of operations for future periods.
F-15
<PAGE>
AFFILIATED LESSEE
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
----------------
HOTELS(A) OTHER PRO FORMA
--------- ------ ---------
<S> <C> <C> <C>
REVENUES:
Room revenue........................................ $37,581 -- $37,581
Food and beverage revenue........................... 23,853 -- 23,853
Other revenue....................................... 9,091 -- 9,091
------- ------ -------
Total revenues.................................... 70,525 -- 70,525
------- ------ -------
EXPENSES:
Departmental expenses:
Rooms............................................. 9,821 -- 9,821
Food and beverage................................. 18,232 -- 18,232
Other............................................. 5,495 -- 5,495
General and administrative.......................... 6,139 -- 6,139
Advertising and promotion........................... 3,878 -- 3,878
Utilities........................................... 1,760 -- 1,760
Management fees(B).................................. -- 5,115 5,115
Repairs and maintenance............................. 3,039 -- 3,039
Other............................................... 243 -- 243
Participating Lease payments(C)..................... -- 16,979 16,979
------- ------ -------
Total expenses.................................... $48,607 22,094 70,701
------- ------ -------
NET LOSS............................................ $ (176)
=======
</TABLE>
- --------
The Pro Forma condensed statement of operations includes the results of
operations of the Marriott Seaview Resort Hotel, Omaha Marriott Hotel, and
LaGuardia Airport Marriott (the Affiliated Lessee Hotels) expected to be
leased from the Operating Partnership by the Affiliated Lessee. The
Affiliated Lessee will have control over the operations of these Hotels
during the terms of the related Participating Leases. The Lessee with the
consent of the Company, has entered into or expects to enter into
management agreements pursuant to which all the Hotels will be managed by
Marriott International. The Lessee's results of operations are seasonal.
(A) Represents the Pro Forma statements of operations of the Affiliated Lessee
Hotels based on actual operating results (excluding management fees) as
though they were leased by the Affiliated Lessee pursuant to the
Participating Leases commencing on January 1, 1997.
(B) Represents management fees (base and incentive) calculated on a Pro Forma
basis by applying the provisions of the management contract to the Pro
Forma revenues and net operating income of the leased hotels calculated as
follows:
<TABLE>
<CAPTION>
MARRIOTT
SEAVIEW OMAHA LAGUARDIA
RESORT MARRIOTT AIRPORT
HOTEL HOTEL MARRIOTT TOTAL
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Base Fee:
Revenues................................. $29,321 $14,695 $26,509 $70,525
Base fee percentage...................... 3% 3% 3% 3%
------- ------- ------- -------
Base Fee................................. 880 441 795 2,116
------- ------- ------- -------
Incentive Fee:
Net Operating Income, as defined......... 7,072 4,025 6,150 17,247
Capital expenditure reserve.............. (1,546) (705) -- (2,251)
------- ------- ------- -------
5,526 3,320 6,150 14,996
Incentive fee percentage................. 20% 20% 20% 20%
------- ------- ------- -------
Incentive Fee............................ 1,105 664 1,230 2,999
------- ------- ------- -------
Total Base and Incentive Fee............. $ 1,985 $ 1,105 $ 2,025 $ 5,115
======= ======= ======= =======
</TABLE>
(C) Represents lease payments to the Company calculated on a Pro Forma basis
by applying the rent provisions of the Participating Leases to the Pro
Forma revenues of the related hotels as though the applicable hotels were
acquired on January 1, 1997 and leased pursuant to the Participating
Leases since that date. See "The Initial Hotels--The Participating Leases"
for the Participating Lease formulas.
F-16
<PAGE>
AFFILIATED LESSEE
PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
The unaudited Pro Forma Condensed Balance Sheet is presented as if the
formation of the Affiliated Lessee in conjunction with the other Formation
Transactions had occurred on December 31, 1997. It should be read in
conjunction with the financial statements included in this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made.
This unaudited Pro Forma Condensed Balance Sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of December 31, 1997, nor does it purport
to represent the future financial position of the Affiliated Lessee.
F-17
<PAGE>
AFFILIATED LESSEE
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................... $1,250(A) $1,250
Accounts receivable, net................................ 1,460(A) 1,460
Inventories, prepaid expenses and other assets.......... 1,196(A) 1,196
------ ------
Total Assets.......................................... 3,906 3,906
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other
liabilities............................................ 3,723(A) 3,723
------ ------
Total Liabilities.....................................
STOCKHOLDERS' EQUITY
Common stock............................................ 1(B) 1(B)
Additional paid-in capital.............................. 182(B) 182
Retained earnings....................................... -- --
------ ------
Total Stockholders' Equity............................ 183 183
------ ------
Total Liabilities & Stockholders' Equity............ $3,906 $3,906
====== ======
</TABLE>
- --------
(A) Represents the historical balances of the assets and liabilities of the
Marriott Seaview Resort Hotel, Omaha Marriott Hotel, and La Guardia
Airport Marriott leased by the Affiliated Lessee from the Operating
Partnership as though they had been leased as of December 31, 1997.
(B) Represents issuance of 100 shares of common stock at $.01 par value.
F-18
<PAGE>
LE MERIDIEN LESSEE
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Le Meridien Lessee's unaudited Pro Forma Condensed Statement of
Operations for the year ended December 31, 1997 are presented as if the
formation of the Le Meridien Lessee had occurred on January 1, 1997, and the
related hotels had been leased by the Le Meridien Lessee pursuant to the
Participating Leases as of that date and carried forward through December 31,
1997. Information should be read in conjunction with the Pro Forma Statements
of Income of LaSalle Hotel Properties and the Financial Statements listed in
the Index to Financial Statements included in this Prospectus. In management's
opinion, all adjustments necessary to reflect the effects of the Formation
Transactions have been made.
The following unaudited Pro Forma Condensed Statement of Operations are not
necessarily indicative of what actual results of operations of the Le Meridien
Lessee would have been assuming such transactions had been completed as of the
beginning of the period presented, nor do they purport to represent the
results of operations for future periods.
F-19
<PAGE>
LE MERIDIEN LESSEE
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------- PRO
HOTELS(A) OTHER FORMA
--------- ------ -------
<S> <C> <C> <C>
REVENUES:
Room revenue.......................................... $27,948 -- $27,948
Food and beverage revenue............................. 8,390 -- 8,390
Other revenue......................................... 2,558 -- 2,558
------- ------ -------
Total revenues...................................... 38,896 -- 38,896
------- -------
EXPENSES:
Departmental expenses:
Rooms................................................. 6,988 -- 6,988
Food and beverage..................................... 6,943 -- 6,943
Other................................................. 1,048 -- 1,048
General and administrative............................ 3,692 -- 3,692
Advertising and promotion............................. 2,943 -- 2,943
Utilities............................................. 1,537 -- 1,537
Management fees(B).................................... -- 973 973
Repairs and maintenance............................... 2,066 -- 2,066
Other................................................. 532 -- 532
Participating Lease payments(C)....................... -- 11,843 11,843
------- ------ -------
Total expenses...................................... $25,749 12,816 38,565
------- ------ -------
NET INCOME............................................ $ 331
=======
</TABLE>
- --------
The Pro Forma condensed statement of operations includes the results of
operations of the Le Meridien New Orleans Hotel and the Le Meridien Dallas
Hotel (the Le Meridien Lessee Hotels) expected to be leased from the
Operating Partnership by the Le Meridien Lessee. The Le Meridien Lessee
will have control over the operations of these Hotels during the terms of
the related Participating Leases. The Lessee with the consent of the
Company, has entered into or expects to enter into management agreements
pursuant to which all the Hotels will be managed by Meridien Hotels, Inc.
The Lessee's results of operations are seasonal.
(A) Represents the Pro Forma statements of operations of the Le Meridien
Lessee Hotels based on actual operating results (excluding management
fees) as though leased by the Le Meridien Lessee pursuant to the
Participating Leases commencing on January 1, 1997.
(B) Represents management fees calculated on a Pro Forma basis by applying the
provisions of the management contract to the Pro Forma revenues of the
leased hotels. Calculated as follows:
<TABLE>
<CAPTION>
LE MERIDIEN LE MERIDIEN
NEW ORLEANS HOTEL DALLAS HOTEL TOTAL
----------------- ------------ -------
<S> <C> <C> <C>
Management Fee:
Revenues............................... $23,396 $15,500 $38,896
Management fee percentage.............. 2.5% 2.5% 2.5%
------- ------- -------
Total Management Fee.................... $ 585 $ 388 $ 973
======= ======= =======
</TABLE>
(C) Represents lease payments to the Company calculated on a Pro Forma basis
by applying the rent provisions of the Participating Leases to the Pro
Forma revenues of the related hotels as though the applicable hotels were
acquired on January 1, 1997 and leased pursuant to the Participating
Leases since that date. See "The Initial Hotels--The Participating Leases"
for the Participating Lease formulas.
F-20
<PAGE>
LE MERIDIEN LESSEE
PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
The unaudited Pro Forma Condensed Balance Sheet is presented as if the
formation of the Le Meridien Lessee in conjunction with the other Formation
Transactions had occurred on December 31, 1997. It should be read in
conjunction with the financial statements included in this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made.
This unaudited Pro Forma Condensed Balance Sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of December 31, 1997, nor does it purport
to represent the future financial position of the Le Meridien Lessee.
F-21
<PAGE>
LE MERIDIEN LESSEE
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
ASSETS
Cash........................ $ 750(A) $ 750
Accounts receivable, net.... 2,161(A) 2,161
Inventories, prepaid
expenses and other assets.. 648(A) 648
Investment in LaSalle Hotel
Properties................. 2,961(C) 2,961
------ ------
Total Assets.............. 6,520 6,520
====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable, accrued
expenses and other
liabilities................ 4,153(A) 4,153
------ ------
Total Liabilities.........
STOCKHOLDERS' EQUITY
Common stock................ 1(B) 1
Additional paid-in capital.. 2,366(B) 2,366
Retained earnings........... -- --
------ ------
Total Stockholders'
Equity................... 2,367 2,367
------ ------
Total Liabilities &
Stockholders' Equity... $6,520 $6,520
====== ======
</TABLE>
- --------
(A) Represents the historical balances of the assets and liabilities of the Le
Meridien New Orleans Hotel and the Le Meridien Dallas Hotel leased by the
Le Meridien Lessee from the Operating Partnership as though they had been
leased as of December 31, 1997.
(B) Represents issuance of 100 shares of common stock at $.01 par value.
(C) Represents a 148,050 share investment in LaSalle Hotel Properties required
as a security deposit in accordance with the terms of the related
Participating Lease, which represents an approximately 1.0% ownership in
LaSalle Hotel Properties. See "The Initial Hotels--The Participating
Leases" for the security deposit requirements.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
La Salle Hotel Properties:
We have audited the accompanying combined balance sheets of the Initial
Hotels (excluding the LaGuardia Airport Marriott) as of December 31, 1996 and
1997, and the related combined statements of operations, partners' capital,
and cash flows for each of the years in the three-year period ended December
31, 1997. In connection with our audits of the combined financial statements,
we also have audited the accompanying financial statement schedule. These
combined financial statements and financial statement schedule are the
responsibility of the management of the Initial Hotels. Our responsibility is
to express an opinion on these combined financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Initial Hotels
(excluding the LaGuardia Airport Marriott) as of December 31, 1996 and 1997,
and the results of their operations, and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
combined financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 10, 1998
F-23
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,384 $ 6,874
Guest and trade receivables, less allowance for doubtful
accounts of $82 and $132, respectively.................... 2,955 5,300
Inventories................................................ 1,146 1,588
Prepaid expenses and other current assets.................. 1,104 1,636
-------- --------
Total current assets..................................... 7,589 15,398
-------- --------
Investment in hotel properties, at cost (note 2)............. 139,418 238,254
Less accumulated depreciation................................ 6,313 15,988
-------- --------
Net investment in hotel properties......................... 133,105 222,266
-------- --------
Deferred charges, net of accumulated amortization of $362 and
$893, respectively.......................................... 1,676 1,974
Restricted cash reserves (note 2)............................ 4,941 11,884
-------- --------
Total assets............................................. $147,311 $251,522
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable........................................... $ 2,398 $ 3,386
Accrued expenses and other liabilities..................... 3,558 8,141
Current installments of long-term debt (note 3)............ 1,203 1,668
-------- --------
Total current liabilities................................ 7,159 13,195
-------- --------
Long-term debt, excluding current installments (note 3)...... 94,466 166,943
-------- --------
Commitments and contingencies (notes 3, 4, and 6)
Total liabilities........................................ 101,625 180,138
-------- --------
Partners' capital............................................ 45,686 71,384
-------- --------
Total liabilities and partners' capital.................. $147,311 $251,522
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
Rooms............................................... $10,396 $28,958 $62,007
Food and beverage................................... 4,639 15,553 28,834
Golf................................................ -- -- 276
Telephone........................................... 580 1,258 2,733
Other............................................... 810 2,400 4,504
------- ------- -------
Total revenue..................................... 16,425 48,169 98,354
------- ------- -------
Operating expenses:
Rooms............................................... 2,948 6,981 15,383
Food and beverage................................... 3,869 11,857 22,253
Golf................................................ -- -- 335
Telephone........................................... 302 717 1,225
Other operating departments......................... 242 1,246 2,461
General and administrative.......................... 1,674 3,792 8,714
Sales and marketing................................. 1,102 2,798 5,888
Real estate and personal property taxes............. 404 1,826 3,424
Property operations and management.................. 931 2,279 4,641
Management fees (note 7)............................ 462 1,861 4,501
Energy.............................................. 882 1,861 3,502
Insurance........................................... 228 582 475
Other fixed expenses................................ 249 656 1,322
Interest expense (note 3)........................... 1,580 4,701 10,745
Depreciation and amortization....................... 1,518 5,026 10,206
Advisory fees (note 6).............................. 231 451 906
------- ------- -------
Total expenses.................................... 16,622 46,634 95,981
------- ------- -------
Net income (loss)..................................... $ (197) $ 1,535 $ 2,373
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
Balance December 31, 1994.............................................. $ 7,256
Distributions........................................................ (1,235)
Contributions........................................................ 14,950
Net loss............................................................. (197)
-------
Balance December 31, 1995.............................................. $20,774
Distributions........................................................ (3,235)
Contributions........................................................ 26,612
Net income........................................................... 1,535
-------
Balance December 31, 1996.............................................. $45,686
Distributions........................................................ (7,066)
Contributions........................................................ 30,391
Net income........................................................... 2,373
-------
Balance December 31, 1997.............................................. $71,384
=======
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (197) $ 1,535 $ 2,373
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 1,518 5,026 10,206
Changes in assets and liabilities:
Guest and trade receivables, net............. (826) (1,672) 750
Inventories.................................. (446) (652) (9)
Prepaid expenses and other current assets.... (568) (410) (138)
Accounts payable............................. 1,004 1,390 366
Accrued expenses and other liabilities....... 1,246 1,732 2,708
-------- -------- ---------
Net cash provided by operating activities... 1,731 6,949 16,256
-------- -------- ---------
Cash flows from investing activities:
Acquisition of hotels including working
capital....................................... (45,057) (74,300) (96,850)
Funding of restricted cash reserve............. (1,113) (2,430) (2,022)
Capital improvement expenditures............... (2,787) (3,058) (8,332)
-------- -------- ---------
Net cash used in investing activities....... (48,957) (79,788) (107,204)
-------- -------- ---------
Cash flows from financing activities:
Payment of deferred loan costs................. (710) (950) (829)
Proceeds from issuance of long-term debt....... 35,250 52,870 74,462
Partners' contributions........................ 14,950 26,612 30,391
Partners' distributions........................ (1,235) (3,235) (7,066)
Principal payments on long-term debt........... (217) (1,150) (1,520)
-------- -------- ---------
Net cash provided by financing activities... 48,038 74,147 95,438
-------- -------- ---------
Increase in cash and cash equivalents........... 812 1,308 4,490
Cash and cash equivalents at beginning of year.. 264 1,076 2,384
-------- -------- ---------
Cash and cash equivalents at end of year........ $ 1,076 $ 2,384 $ 6,874
-------- -------- ---------
Cash paid for interest.......................... $ 1,580 $ 4,701 $ 10,506
======== ======== =========
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ORGANIZATION AND PROPOSED INITIAL PUBLIC OFFERING
LaSalle Hotel Properties (together with its subsidiary, the Company), a
newly organized Maryland corporation, has been formed to own hotel properties
and to continue and expand the hotel investment activities of LaSalle Partners
Incorporated and certain of its affiliates (collectively LaSalle). The Company
will be managed and advised by LaSalle Hotel Advisors, Inc. (the Advisor), a
wholly owned subsidiary of LaSalle. The Company intends to qualify as a real
estate investment trust (REIT) and complete an initial public offering (the
Offering). Upon completion of the Offering, the Company will own interests in
10 full service hotels (the Initial Hotels), through an approximate 82.6%
general partner equity interest in an Operating Partnership (the Operating
Partnership). All of the Initial Hotels will be leased under leases that
provide for rent based on the revenues of the Initial Hotels and will be
managed by independent hotel operators (Hotel Operators).
The Initial Hotels are currently owned by various limited and general
partnerships (the Partnerships) in which LaSalle is the general partner. It is
the intent of LaSalle and its limited and other general partners to contribute
their respective interests in the Initial Hotels in exchange for shares of the
REIT or partnership units of the Operating Partnership.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements of the Initial Hotels
(excluding the LaGuardia Airport Marriott) have been presented on a combined
basis due to their current common ownership and the anticipated ongoing common
ownership of these hotels upon consummation of the proposed initial public
offering. The combined financial statements exclude the LaGuardia Airport
Marriott which was not acquired prior to December 31, 1997 (Note 1). The
acquisition of each of the Initial Hotels has been accounted for as a purchase
and accordingly, the results of operations for each Initial Hotel (excluding
the LaGuardia Airport Marriott) has been included in the combined statements
of operations from the respective dates of acquisition. All significant
intercompany balances and transactions have been eliminated. The Initial
Hotels included in the accompanying presentation are as follows:
<TABLE>
<CAPTION>
NUMBER OF DATE OF
PROPERTY NAME LOCATION ROOMS ACQUISITION
------------- -------- --------- -----------
<S> <C> <C> <C>
Le Montrose All Suite De Gran
Luxe............................ West Hollywood, CA 128 10/28/94
Holiday Inn Plaza Park........... Visalia, CA 257 10/4/94
Radisson Tampa East (formerly the
Camberly Plaza Sabal Park
Hotel).......................... Tampa, FL 265 6/16/95
Radisson Hotel South and
Conference Center............... Bloomington, MN 580 12/1/95
Omaha Marriott Hotel............. Omaha, NE 301 12/19/96
Le Meridien New Orleans Hotel.... New Orleans, LA 494 11/25/96
Key West Holiday Inn Beachside
Resort.......................... Key West, FL 222 7/22/97
Le Meridien Dallas Hotel......... Dallas, TX 396 9/5/97
Marriott's Seaview Resort........ Galloway, NJ 300 11/6/97
</TABLE>
Cash and Cash Equivalents
For purposes of the combined statement of cash flows, all highly liquid
investments with a maturity of three months or less when purchased are
considered to be cash equivalents.
Inventories
Inventories, which consist of linens, food and beverage, golf pro shop
merchandise, and china, glass and silverware, are valued at the lower of cost
(first-in, first-out) or market.
F-28
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Investment in hotel properties
Investment in hotel properties consists of:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land....................................................... 17,684 37,129
Buildings and equipment.................................... 121,734 201,125
------- -------
139,418 238,254
======= =======
</TABLE>
Depreciation is calculated using the straight-line basis over the estimated
useful lives of the related assets, as follows:
<TABLE>
<S> <C> <C>
Building and improvements................................... 25 to 39 years
Furniture and equipment..................................... 5 to 7 years
</TABLE>
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement requires that the majority of long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. Implementation of
this statement had no impact on the accompanying combined financial
statements.
Deferred Charges
Loan costs are capitalized and are amortized on the straight-line basis over
the life of the respective loan.
Franchise fees paid in connection with obtaining a franchise agreement are
capitalized and amortized on a straight-line basis over the term of the
related franchise agreement. Monthly franchise fees are expensed as incurred.
Restricted Cash Reserves
In accordance with the respective loan and management agreements, restricted
cash accounts have been established, certain of which are to be used for
replacements and renewals of furniture, fixtures, and equipment and certain
repairs, as defined. The restricted cash accounts are funded in amounts that
range from 3% to 6% of the gross revenues of the Initial Hotels, as defined.
Income Taxes
The Initial Hotels are not directly subject to income taxes because the
results of their operations are includable in the tax returns of the partners
of the Partnerships. The Company intends to qualify as a REIT under the
Internal Revenue Code, and will therefore not be subject to corporate income
taxes. Accordingly, no provision for income taxes has been included in the
accompanying combined financial statements.
Membership Fees
Golf course membership fees are recognized as revenue using the straight-
line method over the membership period.
F-29
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Derivative Financial Instruments
The Initial Hotels may enter into interest rate cap agreements which they
designate as hedges in order to mitigate the interest rate risk inherent in
the related debt instruments. Any gains or losses related to these agreements
are deferred and amortized over the terms of the respective agreements.
Comparative Figures
Certain 1996 and 1995 amounts were reclassified to conform to the current
year presentation.
(3) LONG-TERM DEBT
Mortgages and Notes Payable
Mortgages and notes payable, which are secured substantially by all the
hotel properties, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
First mortgage loan payable for up to $9,250. The interest is
payable monthly at either the adjusted base rate plus 1% or
LIBOR plus 3%, at the borrower's option (approximately 9.00%
at December 31, 1997). The adjusted base rate is equal to the
higher of the prime rate or the federal funds rate plus 0.5%.
Principal is payable quarterly based on the payment schedule
set forth in the loan agreement. The loan matures June 15,
2000. ....................................................... $ 9,018 $ 8,845
First mortgage loan payable in the amount of $16,570. Interest
is payable monthly at LIBOR plus 2.5% or the Adjusted Base
Rate (as defined) plus .75%, at the borrower's option
(approximately 8.1875% at December 31, 1997). Principal is
payable quarterly based on the payment schedule set forth in
the loan agreement. The loan matures December 19, 2001. ..... 16,492 16,175
First mortgage loan payable in the amount of up to $5,000.
Interest is payable monthly at the three-month Eurodollar
rate plus 4% (approximately 9.75% at December 31, 1997).
Principal is payable monthly based on a 15-year amortization
schedule assuming an 11% interest rate. The loan matures on
November 3, 1999 and may be extended until November 3, 2000
and then to November 3, 2001 by satisfying certain
conditions. The loan is subject to a prepayment penalty, as
defined...................................................... 4,810 4,707
First mortgage loan payable with interest payable monthly at
the three-month Eurodollar rate plus 4.4% (approximately
10.15% at December 31, 1997). Principal is payable monthly
based on a 15-year amortization schedule assuming an 11%
interest rate. The loan matures on October 6, 1999 and may be
extended until October 6, 2000 and then to October 6, 2001 by
satisfying certain conditions. The loan is subject to a
prepayment penalty, as defined............................... 3,761 3,593
First mortgage loan payable monthly at LIBOR plus 4.25%
(approximately 9.97% at December 31, 1997) due in December
2000......................................................... 19,452 18,869
</TABLE>
F-30
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Second mortgage loan payable monthly at LIBOR plus 4.25%
(approximately 9.97% at December 31, 1997) due in December
2000........................................................ $ 5,836 $ 5,660
First mortgage loan payable in the amount of $38,300.
Interest is payable monthly at LIBOR plus 3.5% through
December 1, 2000 then LIBOR plus 3.75% (approximately 9.22%
at December 31, 1997). Principal is payable quarterly based
on the payment schedule set forth in the loan agreement
starting February 1, 1999. The loan matures December 1,
2000........................................................ 36,300 38,300
First mortgage loan payable in the amount of $17,950.
Interest is payable monthly at LIBOR as of one month prior
to reset date (as defined) plus 3.25% (approximately 8.97%
at December 31, 1997). Loan is interest only through August
1, 1999 with principal and interest due thereafter till
August 1, 2000 with an option to extend to August 1, 2001 .. -- 17,950
First mortgage loan payable in the amount of $12,012.
Interest is payable monthly at LIBOR plus 3.25%
(approximately 8.97% at December 31, 1997) and is due
October 1, 2000 with an option to extend through October 1,
2001 ....................................................... -- 12,012
First mortgage loan payable in the amount of $42,500.
Interest is payable monthly at LIBOR plus 3% (approximately
9.00% at December 31, 1997) and is due December 1, 2000 with
an option to extend through December 1, 2001 ............... -- 42,500
-------- --------
Total long-term mortgages and notes payable.................. 95,669 168,611
Less current installments.................................... 1,203 1,668
-------- --------
Long-term mortgages and notes payable excluding current
installments................................................ $ 94,466 $166,943
======== ========
</TABLE>
Aggregate principal payments due for the years ended December 31, (in
thousands) are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 1,668
1999.............................................................. 10,243
2000.............................................................. 141,666
2001.............................................................. 15,034
--------
$168,611
========
</TABLE>
Subsequent to December 31, 1997, approximately $17,145,000 of long-term
mortgages were refinanced (note 10).
Interest Rate Cap Agreements
Interest rate cap agreements are used to reduce the potential impact of
increases in interests rates on floating-rate long-term debt. At December 31,
1997, the Initial Hotels were parties to various interest rate cap agreements
with terms ranging from 3 to 5 years. The agreements entitle the Initial
Hotels to receive from a counterparty (major banks and other institutions),
the amounts, if any, by which the Initial Hotels' interest payments on an
aggregate notational amount of approximately $33,000,000 of long-term debt
exceeds rates ranging from 10.0% to 14.0%. No amounts have been received by
the Initial Hotels under these agreements since their commencement.
The Initial Hotels are exposed to credit losses in the event of
nonperformance by the counterparties to its interest rate cap agreements. The
Initial Hotels anticipate, however, that the counterparties will be able to
fully satisfy their obligations under the contracts. The Initial Hotels do not
obtain collateral to support these obligations but monitor the credit standing
of the counterparties.
F-31
<PAGE>
INITIAL HOTELS (EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(4) LEASES
The Initial Hotels lease several suites to tenants under operating leases
with terms of less than one year.
The Initial Hotels lease certain equipment under noncancelable operating
leases with terms of three years or less. In addition, two hotels are subject
to ground leases and certain of the Initial hotels lease parking lots. Total
lease expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $85,700, $440,000 and $877,000, respectively. Future minimum
lease payments (in thousands) for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
HOTEL
GROUND LEASES OTHER TOTAL
------------- ----- -------
<S> <C> <C> <C>
1998........................................... $ 531 $485 $ 1,016
1999........................................... 534 373 907
2000........................................... 538 208 746
2001........................................... 544 116 660
2002........................................... 547 23 570
Thereafter..................................... 33,915 -- 33,915
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures of
Fair Value of Financial Instruments requires all entities to disclose the fair
value of certain financial instruments in their financial statements.
Accordingly, the carrying amount of cash and cash equivalents, restricted cash
reserves, guest and trade accounts receivables, accounts payable, accrued
expenses and other liabilities are stated at cost which approximates their
fair value due to the short maturity of these instruments.
The carrying amount of debt approximates fair value due to the ability to
obtain such borrowings at comparable interest rates. The aggregate fair value
of the interest rate cap agreements was $0 at December 31, 1997 and 1996 and
is based on amounts expected to be received or paid under the respective
agreements.
(6) ADVISORY AGREEMENTS
The Initial Hotels have entered into separate advisory agreements (Advisory
Agreements) with LaSalle for each of the Initial Hotels. The Advisory
Agreements call for the payment of acquisition, asset management, and
incentive advisory fees.
Amounts incurred (in thousands) under the Advisory Agreements are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING
DECEMBER 31,
--------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Acquisition fees...................................... $ 150 $ 561 $ 681
Asset management fees................................. 231 451 906
</TABLE>
Acquisition fees of $360,000 and $0 were payable at December 31, 1996 and
1997, respectively. Asset management fees of approximately $76,000 and
$181,000 were payable at December 31, 1996 and 1997, respectively.
In addition, an incentive advisory fee may be payable upon the achievement
of certain internal rates of return on Partnership contributions and is
generally calculated based on a percentage of cash distributions after the
achievement of the aforementioned internal rates of returns. No incentive
advisory fees were due or incurred for any of the years in the three-year
period ended December 31, 1997.
F-32
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the Offering and the related asset transfers (note 1),
certain incentive advisory fees may be due under these agreements. The amounts
due under these incentive advisory agreements cannot currently be estimated.
(7) MANAGEMENT AGREEMENTS
The Initial Hotels have entered into separate management agreements
(Operator Agreements) for each of the Initial Hotels with the Hotel Operators.
Pursuant to the terms of the Operator Agreements, the Hotel Operators are to
manage the Hotels for a base management fee equal to a percentage of gross
revenue (as defined), plus an incentive fee equal to a percentage of certain
measures of profitability (as defined). In addition, certain Operating
Agreements call for the payment of Corporate Fees, as defined, equal to a
percentage of gross operating income, as defined, contingent upon the
achievement of certain return hurdles (as defined). The Operator Agreements
are for varying terms which expire at dates from 1998 through 2008.
Fees incurred under the Operator Agreements (in thousands) are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING
DECEMBER 31,
---------------------
1995 1996 1997
------------- -------
<S> <C> <C> <C>
Base management fees................................ $ 407 $ 1,578 $ 2,847
Incentive management fees........................... 55 56 1,654
</TABLE>
Base management fees of approximately $78,000 and $177,000 were payable at
December 31, 1996 and 1997, respectively. Incentive management fees of
approximately $131,000 and $634,000 were payable at December 31, 1996 and
1997, respectively.
One of the initial hotels is subject to a franchise agreement which expires
in July, 2007. The franchise agreement requires that the Partnership maintain
certain quality standards, including making significant renovations of guest
rooms, corridors, and other public areas. In addition, the Partnership is
required to replace certain furniture, fixtures and equipment. The Partnership
is obligated to pay monthly fees based on gross room revenue. These fees are
included in the operator fees discussed below.
In addition, pursuant to the terms of the Operator Agreements, the Hotel
Operators provide the Initial Hotels with various services and supplies,
including marketing, reservations, and insurance. Costs incurred by the
Initial Hotels under these arrangements, including Corporate Fees, as defined,
totaled approximately $295,800, $1,486,000 and $2,086,000, for the years
ending December 31, 1995, 1996 and 1997, respectively.
Subsequent to the Offering (note 1), certain Operator Agreements are
expected to cease or be modified.
(8) EMPLOYEE BENEFIT PLANS
A majority of the employees of the Initial Hotels participate in defined
contribution and other benefit plans, which are administered by the respective
operators in accordance with the provisions of the related labor contracts and
are generally based on hours worked. The Initial Hotels contribution to these
plans totaled approximately $60,200, $608,400 and $876,600, for the years
ending December 31, 1995, 1996 and 1997, respectively.
(9) PRO FORMA INFORMATION (UNAUDITED)
Affiliates of LaSalle acquired the Initial Hotels at various times through
November 6, 1997 as described in note 1. The following table sets forth
certain summary unaudited pro forma operating data as if the acquisitions had
been consummated as of the beginning of the previous respective period.
F-33
<PAGE>
INITIAL HOTELS
(EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
These amounts do not include the LaGuardia Airport Marriott, which was not
acquired prior to December 31, 1997.
<TABLE>
<CAPTION>
FOR THE YEARS ENDING
DECEMBER 31,
-------------------------
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenues................................... $79,461 $104,771 $140,353
Total interest................................... 9,087 12,728 15,876
Total depreciation............................... 8,420 10,359 14,766
Total expenses................................... 77,995 102,848 137,602
Net income....................................... 1,466 1,923 2,751
</TABLE>
The unaudited pro forma operating data are presented for comparative
purposes only and are not necessarily indicative of what the actual results of
operations would have been for each of the periods presented, nor does such
data purport to represent the results to be achieved in future periods.
(10) COMMITMENTS AND CONTINGENCIES
The nature of the operations of the Initial Hotels exposes them to the risk
of claims and litigation in the normal course of its business. Although the
outcome of these matters cannot be determined, management believes that the
ultimate resolution of these matters will not have a material adverse effect
on the financial position or operations of the Initial Hotels.
The terms of the debt agreement secured by the LeMeridien New Orleans
requires the Partnership to commit to certain capital expenditures and
maintenance totaling approximately $1,709,000 and $900,000 for the years ended
December 31, 1998 and 1999, respectively.
(11) CONCENTRATION OF RISK
The profitability of the Initial Hotels is dependent upon business and
leisure travelers and in certain circumstances, golf tourism. Consequently
demand may fluctuate and be seasonal. Unfavorable economic or weather
conditions could adversely affect the results of operations.
(12) SUBSEQUENT EVENTS
Affiliates of LaSalle have entered into a letter of intent to acquire the
LaGuardia Airport Marriott, a 436 room hotel in New York, NY, on behalf of the
Company.
The partnerships owning three of the Initial Hotels (Radisson Tampa East
Hotel, Holiday Inn Plaza Park and Le Montrose All Suite Hotel De Gran Luxe)
entered into a loan agreement on January 30, 1998 with an affiliate of
Prudential Securities Incorporated pursuant to which the three partnerships
borrowed an aggregate of $48,000,000, the proceeds of which were used to
purchase certain limited and general partnership interests in those three
Initial Hotels and to repay outstanding mortgage and other indebtedness on
such Initial Hotels and certain expenses in connection therewith.
F-34
<PAGE>
INITIAL HOTELS (EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNTS AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
----------------- ---------------------------
ACCUMULATED
DEPRECIATION NET BOOK
(C) PROPERTY & VALUE
PROPERTY AND PROPERTY AND (A) PROPERTY & TOTAL EQUIPMENT PROPERTY &
DESCRIPTION ENCUMBRANCES LAND EQUIPMENT LAND EQUIPMENT LAND EQUIPMENT (A) (C) (B) EQUIPMENT
----------- ------------ ------- ------------ ---- ------------ ------- ---------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Omaha Marriott,
Omaha, Nebraska.. $ 16,175 $ 3,800 $22,077 $ 0 $ 1,480 $ 3,800 $ 23,557 $ 27,357 $ 1,228 $ 26,129
LeMeridien New
Orleans
New Orleans,
Louisiana........ 38,300 0 48,422 0 2,726 0 51,148 51,148 2,558 48,590
LeMeridien
Dallas,
Dallas, Texas.... 12,012 1,700 15,378 0 655 1,700 16,033 17,733 168 17,565
Holiday Inn
Beachside,
Key West,
Florida.......... 17,950 6,033 17,940 0 504 6,033 18,444 24,477 368 24,109
Holiday Inn Plaza
Park,
Visalia,
California....... 3,593 1,342 4,622 0 1,922 1,342 6,544 7,886 1,056 6,830
LeMontrose All
Suite Hotel
De Gran Luxe,
West Hollywood,
California....... 4,707 1,430 6,487 0 1,800 1,430 8,287 9,717 1,635 8,082
Radisson Hotel
South and
Plaza Tower,
Bloomington,
Minnesota........ 24,529 8,985 23,133 0 3,420 8,985 26,553 35,538 6,074 29,464
Camberley Plaza
Sabal Park,
Tampa, Florida... 8,845 2,128 11,501 0 1,186 2,128 12,820 14,948 2,302 12,646
Marriott's
Seaview Resort,
Galloway, New
Jersey........... 42,500 11,711 37,484 0 255 11,711 37,739 49,450 599 48,851
-------- ------- -------- --- ------- ------- -------- -------- ------- --------
Total........... $168,611 $37,129 $187,044 $ 0 $13,948 $37,129 $201,125 $238,254 $15,988 $222,266
======== ======= ======== === ======= ======= ======== ======== ======= ========
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN INCOME
DATE OF DATE OF STATEMENT IS
DESCRIPTION CONSTRUCTION ACQUISITION COMPUTED
----------- ------------ ----------- -------------
<S> <C> <C> <C>
Omaha Marriott,
Omaha, Nebraska.. 1982 Dec-96 5 - 39 years
LeMeridien New
Orleans
New Orleans,
Louisiana........ 1984 Nov-96 5 - 39 years
LeMeridien
Dallas,
Dallas, Texas.... 1980 Sep-97 5 - 39 years
Holiday Inn
Beachside,
Key West,
Florida.......... 1960 Jul-97 5 - 39 years
Holiday Inn Plaza
Park,
Visalia,
California....... 1976 Oct-94 5 - 25 years
LeMontrose All
Suite Hotel
De Gran Luxe,
West Hollywood,
California....... 1976 Oct-94 5 - 25 years
Radisson Hotel
South and
Plaza Tower,
Bloomington,
Minnesota........ 1989 Dec-95 5 - 30 years
Camberley Plaza
Sabal Park,
Tampa, Florida... 1987 Jun-95 5 - 39 years
Marriott's
Seaview Resort,
Galloway, New
Jersey........... 1912 Nov-97 5 - 30 years
Total...........
</TABLE>
F-35
<PAGE>
- --------
(a) Reconciliation of Investment in hotel properties:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Balance at beginning of
period................. 14,216 62,060 139,418
Additions--improvements
and property
acquisitions........... 47,844 77,358 98,836
------ ------- -------
Balance at end of
period................. 62,060 139,418 238,254
------ ------- -------
(b) Reconciliation of accumulated depreciation:
Balance at beginning of
period................. 133 1,506 6,313
Depreciation expense.... 1,373 4,807 9,675
------ ------- -------
Balance at end of
period................. 1,506 6,313 15,988
------ ------- -------
</TABLE>
(c) Aggregate cost for Federal income tax reporting purposes at December 31,
1997 is as follows:
<TABLE>
<S> <C>
Land............................................................. $ 37,129
Property & equipment............................................. 201,125
--------
$238,254
========
</TABLE>
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
LaSalle Hotel Properties:
We have audited the accompanying statements of revenues and expenses and
cash flows of the Omaha Marriott Hotel for the period from December 30, 1995
to December 19, 1996. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying statements of revenues and expenses and cash flows were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and for inclusion in the Registration
Statement on Form S-11 of LaSalle Hotel Properties as described in note 1. The
presentation is not intended to be a complete presentation of the revenues and
expenses of the Omaha Marriott Hotel.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and expenses and cash flows, described
in note 1, of the Omaha Marriott Hotel for the period from December 30, 1995
to December 19, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Omaha, Nebraska
January 9, 1998
F-37
<PAGE>
OMAHA MARRIOTT HOTEL
STATEMENT OF REVENUES AND EXPENSES (NOTE 1)
PERIOD FROM DECEMBER 30, 1995 TO DECEMBER 19, 1996
<TABLE>
<S> <C>
REVENUES:
Rooms............................................................. $ 8,218,842
Food and beverage................................................. 5,705,950
Telephone......................................................... 225,470
Other............................................................. 368,765
-----------
Total revenues..................................................... 14,519,027
-----------
EXPENSES:
Rooms............................................................. 1,986,971
Food and beverage................................................. 4,323,251
Telephone......................................................... 118,517
Other operating departments....................................... 330,135
Property maintenance and operations............................... 494,325
Utilities......................................................... 315,531
General and administrative........................................ 1,308,409
Sales and marketing............................................... 571,243
National advertising, sales and training.......................... 246,726
Property taxes.................................................... 253,202
Management fees (note 1).......................................... 1,130,249
-----------
Total expenses..................................................... 11,078,559
-----------
Excess of revenues over expenses................................... $ 3,440,468
-----------
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
OMAHA MARRIOTT HOTEL
STATEMENT OF CASH FLOWS (NOTE 1)
PERIOD FROM DECEMBER 30, 1995 TO DECEMBER 19, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Excess of revenues over expenses................................. $ 3,440,468
Adjustments to reconcile to net cash provided by operating activ-
ities:
Decrease in guest and trade receivables, net.................... 324,866
Decrease in due from Marriott................................... 79,880
Increase in prepaid expenses and other current assets........... (502)
Increase in accounts payable.................................... 190,723
Decrease in accrued expenses and other liabilities.............. (10,819)
-----------
Net cash provided by operating activities......................... 4,024,616
-----------
Cash flows from investing activities:
Capital expenditures............................................. (797,782)
Increase in restricted cash...................................... (387,742)
-----------
Net cash used in investing activities............................. (1,185,524)
-----------
Cash flows used in financing activities--distributions to owners.. (2,776,028)
-----------
Net increase in cash.............................................. 63,064
Cash and cash equivalents at beginning of period.................. 235,404
-----------
Cash and cash equivalents at end of period........................ $ 298,468
-----------
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
OMAHA MARRIOTT HOTEL
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM DECEMBER 30, 1995 TO DECEMBER 19, 1996
(1) ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
The Omaha Marriott Hotel (the Hotel) is a 301-room hotel constructed in
1982. The Hotel was owned by Starwood Lodging Trust (the Owner) through
December 19, 1996, when it was sold to an affiliate of LaSalle Hotel
Properties. The accompanying financial statements include the revenues and
expenses and associated cash flows for the Omaha Marriott Hotel for the period
December 30, 1995 through December 19, 1996. Certain revenues and expenses
related to the ownership of the Hotel including but not limited to
depreciation, interest expense, and gains or losses on assets, have been
excluded from the accompanying presentation since the related records were not
available.
These financial statements have been presented for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
Regulation S-X and for inclusion in the Registration Statement on Form S-11 of
LaSalle Hotel Properties. The presentation is not intended to be a complete
presentation of the revenues and expenses of the Omaha Marriott Hotel.
Management Agreement
The Hotel is subject to a management agreement (Management Agreement) with
Marriott Corporation (Marriott) dated August 9, 1979. Pursuant to the terms of
the Management Agreement, Marriott is to manage the Hotel operations through
2007. Marriott may renew the Management Agreement on the same terms for each
of three successive periods of ten fiscal years each. Marriott receives a base
management fee equal to 3% of the gross revenue, as defined, for each year,
paid monthly based on adjusted gross revenue of the preceding month. Marriott
also receives an incentive fee calculated based on 20% of net operating
profit, as defined. Base management fees and management incentive fees
incurred were $486,242 and $694,007, respectively, for the period December 30,
1995 to December 19, 1996.
Under the Management Agreement, Marriott also provides the hotel with
various national services reimbursable up to 2.75% of gross revenue, as
defined annually. These services cover national sales support, national and
local advertising and certain training services which amounted to $246,726 for
the period December 30, 1995 through December 19, 1996. The Hotel is also
charged a national reservation system fee of $5 per booked reservation and a
payroll/accounting services fee of .53% of gross revenue.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, all highly liquid investments
with a maturity of three months or less when purchased are considered to be
cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Restricted Cash
In accordance with the Management Agreement, a restricted cash account has
been established to be used only for replacements and renewals of furniture,
fixtures and equipment and certain routine and non-routine repair, as defined.
The restricted cash accounts are based on monthly gross revenues, as defined,
of the Hotel and off-site banquet operations, respectively.
Income Taxes
The Owner of the Hotel, a partnership, was not directly subject to income
taxes as any liability for Federal income taxes would be that of the Partners
of the Owner.
F-40
<PAGE>
OMAHA MARRIOTT HOTEL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM DECEMBER 30, 1995 TO DECEMBER 19, 1996
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) BENEFIT PLAN
A defined contribution plan was established by Marriott for all eligible
employees, as defined, of the Hotel. The monthly benefit is calculated as 2.5%
of eligible gross salaries and wages, as defined, and amounted to $86,439 for
the period from December 30, 1995 through December 19, 1996.
(4) COMMITMENTS AND CONTINGENCIES
The nature of the Hotel's operations exposes the Owner to the risk of claims
and litigation in the normal course of business. Management believes that the
ultimate resolution of any outstanding matters will not have a material
adverse effect on the financial position of operations of the Hotel.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
LaSalle Hotel Properties:
We have audited the accompanying balance sheet of Rahn Key West Resort, Inc.
as of December 31, 1996, and the related statements of operations,
stockholders' deficit, and cash flows for the year then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rahn Key West Resort, Inc.
at December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Miami, Florida
January 9, 1998
F-42
<PAGE>
RAHN KEY WEST RESORT, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 JUNE 30, 1997
ASSETS ----------- -------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash............................................... $ 182,785 $ 984,009
Trade receivables (less allowance for doubtful
accounts of $10,400).............................. 283,429 148,462
Other receivables.................................. 4,228 --
Inventories (Note 1)............................... 49,326 50,289
Prepaid expenses................................... 20,367 --
----------- ----------
Total current assets............................. 540,135 1,182,760
----------- ----------
Property and Equipment:
At cost (Notes 1, 2, 3, 4, and 7):
Land and land improvements......................... 608,754 --
Buildings and improvements......................... 7,183,550 --
Furniture and equipment............................ 2,125,387 --
China, glass, silver, and linen.................... 25,275 --
----------- ----------
Total............................................ 9,942,966 --
Less accumulated depreciation...................... (2,761,866) --
----------- ----------
Net property and equipment....................... 7,181,100 --
----------- ----------
Property held for sale (Notes 2 and 7).............. -- 7,227,405
Other Assets (Notes 1, 4, 5):
Deferred loan costs and franchise fees (net of
accumulated amortization of $125,864)............. 172,411 137,929
Restricted cash--property improvement fund......... 1,407 1,425
Restricted cash--property tax fund................. 778 786
Other.............................................. 45,722 47,532
----------- ----------
Total other assets............................... 220,318 187,672
----------- ----------
$ 7,941,553 $8,597,837
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
RAHN KEY WEST RESORT, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 JUNE 30, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT ----------- -------------
(UNAUDITED)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt and note payable. $ 523,809 523,809
Note payable--related party........................ 1,800,125 1,800,125
Accounts payable................................... 83,082 38,492
Accrued expenses:
Franchise fees (Note 4)........................... 41,894 45,143
Payroll and payroll related items................. 42,533 38,536
Utilities......................................... 52,747 42,541
Vacation.......................................... 31,891 31,891
Interest (Notes 2, 3)............................. 174,025 124,811
Advance guest deposits............................ 7,877 3,812
Other............................................. 94,539 48,231
----------- ----------
Total accrued expenses.......................... 445,506 334,965
----------- ----------
Due to affiliate (Note 5).......................... 16,565 15,094
----------- ----------
Total current liabilities....................... 2,869,087 2,712,485
----------- ----------
Long-Term Debt, Net of current portion (Note 3)..... 14,870,262 14,619,867
----------- ----------
Stockholders' Deficit:
Common stock--par value $10 per share; authorized
and issued 100 shares of which 85 are held as
treasury stock.................................... 1,000 1,000
Additional paid-in capital......................... 435,849 435,849
Accumulated deficit................................ (3,264,645) (2,201,364)
----------- ----------
Total........................................... (2,827,796) (1,764,515)
Less treasury stock, 85 shares at cost............. (6,970,000) (6,970,000)
----------- ----------
Total stockholders' deficit..................... (9,797,796) (8,734,515)
----------- ----------
$ 7,941,553 8,597,837
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
RAHN KEY WEST RESORT, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1996 JUNE 30, 1997
---------- -------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Rooms............................................... $6,337,333 $3,863,593
Food and beverage................................... 1,131,850 622,776
Other, primarily telephone.......................... 247,352 126,556
---------- ----------
Total revenues.................................... 7,716,535 4,612,925
---------- ----------
EXPENSES:
Rooms............................................... 1,260,485 652,152
Food and beverage................................... 1,018,877 534,253
Other, primarily telephone.......................... 60,951 34,406
General and administrative expenses................. 560,920 299,825
Marketing expenses.................................. 368,167 196,125
Property maintenance and operations ................ 348,096 192,358
Utilities........................................... 627,543 317,269
Management fees..................................... 231,480 138,389
Franchise fees (Note 4)............................. 257,110 143,668
Property taxes...................................... 309,458 150,498
Professional fees................................... 33,830 18,904
Insurance--property, general liability and other.... 99,106 55,369
Loss on asset disposals............................. 42,707 47,749
Depreciation and amortization....................... 470,319 34,482
Interest expense, net of interest income of $4,542
in 1996............................................ 1,553,993 748,873
Loss on sale of land parcel......................... 64,444 --
Miscellaneous (income) expense...................... (26,280) (14,676)
---------- ----------
Total expenses.................................... 7,281,206 3,549,644
========== ==========
Net income........................................... $ 435,329 $1,063,281
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
RAHN KEY WEST RESORT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID-IN ACCUMULATED ------------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
------ ------ ---------- ----------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 100 $1,000 $435,849 $(3,699,974) 85 $(6,970,000) $(10,233,125)
Net income............. -- -- -- 435,329 -- -- 435,329
--- ------ -------- ----------- --- ----------- ------------
Balance, December 31,
1996................... 100 $1,000 $435,849 $(3,264,645) 85 $(6,970,000) $ (9,797,796)
Net income (unaudited). 100 -- -- 1,063,281 -- -- 1,063,281
--- ------ -------- ----------- --- ----------- ------------
Balance, June 30, 1997
(unaudited)............ 100 $1,000 $435,849 $(2,201,364) 85 $(6,970,000) $ (8,734,515)
=== ====== ======== =========== === =========== ============
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
RAHN KEY WEST RESORT, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1996 JUNE 30, 1997
----------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 435,329 $1,063,281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 470,319 34,482
Loss on asset disposal............................ 42,707 --
Loss on sale of land parcel....................... 64,444 --
Changes in assets and liabilities:
Trade receivables................................. (85,535) 134,965
Other receivables................................. 2,319 4,228
Inventories....................................... (1,853) (963)
Prepaid expenses.................................. 33,472 20,367
Other assets...................................... (53,066) (1,800)
Accounts payable.................................. 33,414 (44,590)
Accrued expenses.................................. 11,167 (110,541)
Due to affiliate.................................. (1,755) (1,471)
----------- ----------
Net cash provided by operating activities......... 950,962 1,097,958
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment.............. (1,167,495) (46,339)
Proceeds from asset disposals and sale of land par-
cel............................................... 2,003,316 --
----------- ----------
Net cash provided by (used in) investing activi-
ties............................................. 835,821 (46,339)
----------- ----------
Cash flows from financing activities:
Repayments of long-term debt....................... (2,500,000) (250,395)
Repayments of note payable......................... (23,019) --
Proceeds from note payable to related party........ 1,287,409 --
Repayments on note payable to related party........ (492,459) --
----------- ----------
Net cash used in financing activities............. (1,728,069) (250,395)
Increase in cash and cash equivalents............... 58,714 801,224
Cash and cash equivalents, at beginning of period... 124,071 182,785
----------- ----------
Cash and cash equivalents, at end of period......... $ 182,785 $ 984,009
=========== ==========
Supplemental Disclosure
Cash paid for interest............................. $ 1,540,719 $ 748,873
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
RAHN KEY WEST RESORT, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED AS TO INTERIM PERIOD)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Operations and Basis of Presentation--Rahn Key West Resort,
Inc. (the "Company") is principally engaged in the operation of the Holiday
Inn Key West, a 222 room hotel and restaurant facility in Key West,
Florida. The hotel was owned by the Company through July 22, 1997, when it
was sold to an affiliate of LaSalle Hotel Properties.
These financial statements have been presented for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
Regulation S-X and for inclusion in the Registration Statement on Form S-11
of LaSalle Hotel Properties.
Cash & Cash Equivalents
For purposes of the statement of cash flows, all highly liquid
investments with a maturity of three months or less when purchased are
considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment
Depreciation of property and equipment is provided using straight-line
and accelerated methods over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Land improvements.............................................. 20 years
Buildings and improvements..................................... 5-40 years
Furniture and equipment........................................ 3-8 years
</TABLE>
Depreciation expense was $421,934 for 1996.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement requires that the majority of long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell.
Property Held for Sale
Property held for sale is expected to be sold in the near term (note 7)
and is carried at the lower of cost or fair value less costs to sell.
Depreciation and amortization is suspended during the period the property
is held for sale.
Amortization
Deferred loan costs are amortized using the straight-line method over the
term of the loan. The initial franchise fee of $51,600 with Holiday Inns
Franchising, Inc. and the additional franchise fee of $15,000 for the 50-
room addition during fiscal year ended 1989 are amortized using the
straight-line method over the remaining term of the agreement, which
expired in February 1997. Amortization expense was $48,385 for 1996.
Income Taxes
The Company and its stockholders elected to be treated as an S
Corporation for income tax purposes. Under this election, all profits and
losses are directly attributable to the stockholders.
F-48
<PAGE>
RAHN KEY WEST RESORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED AS TO INTERIM PERIOD)
Business Risk
Any substantial change in economic conditions or any significant price
fluctuations related to the travel and tourism industry could affect
discretionary consumer spending and have a material impact on the Company's
business. In addition, the Company is subject to competition from other
entities engaged in the business of resort development and operation,
including interval ownership, condominiums, hotels and motels.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. NOTE PAYABLE
On January 6, 1995, the Company purchased $69,713 in equipment which was
financed by a note payable to a bank. The note accrues interest at 10.69%
and is payable in 36 monthly installments.
3. LONG-TERM DEBT
In July 1988, a loan agreement was entered into for $15.5 million, the
proceeds of which were used to pay off all the existing debt at that date.
The loan was collateralized by a first mortgage on the real property,
assignment of the leases and rents of the hotel, and all present and future
furniture and equipment, inventories, accounts, and general intangibles. In
addition, the two majority stockholders guaranteed the payment of all
interest and operating deficits. Distributions to stockholders were subject
to certain limitations under the terms of the loan agreement.
In August 1989, an agreement was entered into to increase the original loan
by an amount not to exceed $3,450,000. In July 1993, the Company extended
the maturity of this loan for two years. The provisions of the related
amended promissory note require monthly payments of interest plus $25,000
of principal, increasing to $41,667 on August 1, 1994. In addition, the
amended promissory note requires additional principal payments in amounts
equal to the excess of the immediately preceding fiscal year's cash flow,
as defined, over $900,000 on April 1, 1994 and 1995. A payment of $71,395
was made on April 1, 1994 for the 1993 fiscal year's cash flows.
In October 1995, the maturity of this loan was again extended for three
years effective as of July 1995 with the remaining principal balance due on
the maturity date in June 1998. The provisions of the second amended
promissory note in the amount of $17,953,600 (remaining principal balance
at date of second promissory note) require monthly payments of interest
plus $41,667 of principal. In addition, the second amended promissory note
requires additional principal payments in amounts equal to the excess cash
flow, as defined, for the immediately preceding fiscal year (or for the
period from August 1, 1995 to December 31, 1996 for the first application
date) on each application date (February 15, 1997 and February 15th of each
calendar year thereafter).
At the Company's election, the interest rate on the loan may be either
1.75% above the prime rate or 3.0% above a LIBOR rate. The effective
interest rate as of December 31, 1996 was 8.56%.
F-49
<PAGE>
RAHN KEY WEST RESORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED AS TO INTERIM PERIOD)
4. COMMITMENTS AND CONTINGENCIES
As part of the franchise agreement with Holiday Inns Franchising Inc., the
Company is obligated to pay monthly fees based on gross room revenues.
These fees include royalty fees at 4% (5% effective February 1997),
marketing fees at 1.5%, reservation fees at 1% and a monthly reservation
system fee of approximately $6 per guest room. The franchise agreement
expires in February, 2007.
5. RELATED PARTY TRANSACTIONS
Management Agreement
During 1987, the Company entered into a management agreement with Rahn
Venture 1, Inc. which is affiliated through common ownership with the
Company's two majority stockholders. The agreement provides for payment of
an amount equal to 3% of gross revenues and 10% of net operating profit, as
defined. As of August 1, 1995, the management incentive fee (10% of net
operating profit) was eliminated. Management fee expense was $231,480 for
the year ended December 31, 1996, of which $16,565 was unpaid at December
31, 1996.
Other Related Party Transactions
Legal services are rendered by a minority stockholder and fees paid in
1996 were $12,064.
Note payable
Related party at December 31, 1996 is payable on demand. The interest
rate on the note is 1.75% above prime with an effective rate of 10% at
December 31, 1996.
6. DISCLOSURE REGARDING FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade and other
receivables, accounts payable, and accrued expenses approximate fair value
due to the relatively short maturity of the respective instruments. The
carrying amounts of the notes payable and long-term debt to banks and
affiliates approximate fair value because the interest rates on these
instruments change with market interest rates and are commensurate with the
risk involved.
7. SUBSEQUENT EVENTS
In May of 1997, the Company agreed to sell their interest in the hotel
property and related operating equipment, licenses and permits to an
affiliate of LaSalle Hotel Properties for a purchase price of $23.5 million
subject to an adjustment to reflect changes in the closing date and certain
prorations. Pursuant to the purchase agreement the Company consummated the
sale on July 22, 1997.
F-50
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Rahn Key West Resort, Inc.:
We have audited the accompanying balance sheet of Rahn Key West Resort, Inc.
(the "Company") as of December 31, 1995, and the related statements of
operations, changes in stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1995, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 19, 1996
F-52
<PAGE>
RAHN KEY WEST RESORT, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 124,071
Trade receivables (less allowance for doubtful accounts of
$5,000)......................................................... 197,894
Other receivables................................................ 6,547
Inventories (Note 1)............................................. 47,473
Prepaid expenses................................................. 53,839
-----------
Total current assets........................................... 429,824
-----------
PROPERTY AND EQUIPMENT--
At cost (Notes 1,2,3,4):
Land and land improvements....................................... 2,550,340
Buildings and improvements....................................... 6,957,113
Furniture and equipment.......................................... 1,857,677
China, glass, silver, and linen.................................. 25,274
-----------
Total.......................................................... 11,390,404
Less accumulated depreciation.................................... (2,844,398)
-----------
Net property, plant and equipment.............................. 8,546,006
-----------
OTHER ASSETS (Notes 1,4,5):
Deferred loan costs and franchise fees (net of accumulated
amortization of $77,479)........................................ 168,296
Restricted cash--property improvement fund 1,354
Restricted cash--property tax fund............................... 665
Other............................................................ 45,322
-----------
Total other assets............................................. 215,637
-----------
TOTAL............................................................. $ 9,191,467
===========
</TABLE>
See notes to financial statements.
F-53
<PAGE>
RAHN KEY WEST RESORT, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt (Notes 3,4)................... $ 522,949
Note payable--related party (Note 6)............................ 1,005,175
Accounts payable................................................ 49,668
Accrued expenses:
Property taxes.................................................
Franchise fees (Note 5)........................................ 43,557
Payroll and payroll related items.............................. 41,915
Utilities...................................................... 58,072
Vacation....................................................... 37,314
Interest (Notes 3,4)........................................... 156,209
Advance guest deposits......................................... 8,321
Other.......................................................... 88,951
------------
Total accrued expenses....................................... 434,339
------------
Due to affiliate (Note 6)....................................... 18,320
------------
Total current liabilities.................................... 2,030,451
------------
NOTE PAYABLE, Net of current portion (Note 3).................... 23,879
------------
LONG-TERM DEBT, Net of current portion (Note 4).................. 17,370,262
------------
STOCKHOLDERS' DEFICIT (Note 4):
Common stock--par value $10 per share; authorized and issued 100
shares of which 85 are held as treasury stock.................. 1,000
Additional paid-in capital...................................... 435,849
Accumulated deficit............................................. (3,699,974)
------------
Total........................................................ (3,263,125)
Less treasury stock, 85 shares at cost.......................... (6,970,000)
------------
Total stockholders' deficit.................................. (10,233,125)
------------
TOTAL............................................................ $ 9,191,467
============
</TABLE>
See notes to financial statements.
F-54
<PAGE>
RAHN KEY WEST RESORT, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES (Note 5):
Rooms............................................................. $5,958,614
Food and beverage................................................. 1,289,089
Other, primarily telephone........................................ 265,346
----------
Total revenues................................................... 7,513,049
----------
EXPENSES:
Rooms............................................................. 1,179,675
Food and beverage................................................. 1,069,690
Other, primarily telephone........................................ 60,707
General and administrative expenses............................... 580,916
Marketing expenses................................................ 383,557
Property operations and maintenance............................... 400,534
Utilities......................................................... 599,652
Management fees (Note 6).......................................... 405,533
Royalty fees (Note 5)............................................. 242,488
Property taxes.................................................... 325,713
Professional fees................................................. 33,981
Insurance--property, general liability and other.................. 95,053
Loss on asset disposals........................................... 28,506
Depreciation and amortization (Note 1)............................ 488,075
Interest expense, net of interest income of $7,120 (Notes 1, 3,
4)............................................................... 1,686,811
Write-down of land held for sale (Note 2)......................... 400,000
Miscellaneous income.............................................. (48,330)
----------
Total expenses................................................... 7,932,561
----------
Net loss........................................................... $ (419,512)
==========
</TABLE>
See notes to financial statements.
F-55
<PAGE>
RAHN KEY WEST RESORT, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID-IN ACCUMULATED ------------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
------ ------ ---------- ----------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994................... 100 $1,000 $435,849 $(3,280,462) 85 $(6,970,000) $ (9,813,613)
Net loss................ -- -- -- (419,512) -- -- (419,512)
--- ------ -------- ----------- --- ----------- ------------
BALANCE, DECEMBER 31,
1995................... 100 $1,000 $435,849 $(3,699,974) 85 $(6,970,000) $(10,233,125)
=== ====== ======== =========== === =========== ============
</TABLE>
See notes to financial statements.
F-56
<PAGE>
RAHN KEY WEST RESORT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss......................................................... $ (419,512)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.................................... 488,075
Loss on asset disposals.......................................... 28,506
Write-down of land held for sale................................. 400,000
Changes in assets and liabilities:
Trade receivables............................................... (5,668)
Other receivables............................................... 3,865
Inventories..................................................... 183
Prepaid expenses................................................ (36,241)
Other assets.................................................... (166,038)
Accounts payable................................................ (32,997)
Accrued expenses................................................ 87,028
Due to affiliate................................................ (37,891)
----------
Net cash provided by operating activities....................... 309,310
----------
INVESTING ACTIVITIES:
Acquisition of property and equipment............................. (349,847)
Proceeds from asset disposal...................................... 750
----------
Net cash used in investing activities............................ (349,097)
----------
FINANCING ACTIVITIES:
Repayments of long-term debt...................................... (500,004)
Repayment of note payable......................................... (22,889)
Loans from related parties........................................ 1,005,175
Repayment of loans from related parties........................... (431,000)
----------
Net cash provided by financing activities........................ 51,282
----------
NET INCREASE IN CASH............................................... 11,495
CASH, BEGINNING OF YEAR............................................ 112,576
----------
CASH, END OF YEAR.................................................. $ 124,071
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest........................... $1,681,297
==========
</TABLE>
See notes to financial statements.
F-57
<PAGE>
RAHN KEY WEST RESORT, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by Rahn Key West Resort, Inc. (the "Company") in the preparation of the
accompanying financial statements.
Organization and Operations
Rahn Key West Resort, Inc. is principally engaged in the operation of the
Holiday Inn-Beachside, a 222-room hotel and restaurant facility in Key
West, Florida, under a licensing agreement with Holiday Inns, Inc. The
Company also owns an adjacent 4.5-acre parcel of land that is undeveloped.
Inventories
Inventories consisting primarily of food and beverages are stated at the
lower of cost (first-in, first-out method) or market.
Property and Equipment
Depreciation of property and equipment is provided using straight-line
and accelerated methods over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Land improvements............................................... 20 years
Buildings and improvements...................................... 5-40 years
Furniture and equipment......................................... 3-8 years
</TABLE>
Depreciation expense was $425,660 for 1995.
Amortization
Loan costs are amortized using the straight-line method over the term of
the loan. The initial franchise fee of $51,600 with Holiday Inns
Franchising, Inc. and the additional franchise fee of $15,000 for the
50-room addition during fiscal year ended 1989 are amortized using the
straight-line method over the remaining term of the agreement, which
expires in February 1997. Amortization expense was $62,415 for 1995.
Income Taxes
The Company and its stockholders have elected to be treated as an S
Corporation for income tax purposes. Under this election, all profits and
losses are directly attributable to the stockholders with no resulting tax
effect to the corporation and stockholder distributions are reductions of
retained earnings. Accordingly, there is no income tax provision recorded
in the accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Disclosure Regarding Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses approximate fair value due to the
relatively short maturity of the respective instruments. The carrying
amounts of the loans payable and long-term debt to banks and affiliates
approximate fair value because the interest rates on these instruments
change with market interest rates.
F-58
<PAGE>
RAHN KEY WEST RESORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
2. LAND HELD FOR SALE
The Company determined that the parcel of undeveloped land adjacent to the
hotel, included in land and land improvements, would not be developed but
would be held for sale. Property held for sale is stated at the lower of
cost or estimated fair value.
As of December 31, 1995, the estimated fair value of the land held for sale
was estimated to be $2,000,000 which resulted in a $400,000 write-down of
such land.
3. NOTE PAYABLE
On January 6, 1995, the Company purchased $69,713 in equipment which was
financed by a note payable to a bank. The note accrues interest at 10.69%
and is payable in 36 monthly installments, including interest, of $2,272.
4. LONG-TERM DEBT
In July 1988, a loan agreement was entered into for $15.5 million, the
proceeds of which were used to pay off all the existing debt at that date.
The loan is collateralized by a first mortgage on the real property,
assignment of the leases and rents of the hotel, and all present and future
furniture and equipment, inventories, accounts, and general intangibles. In
addition, the two majority stockholders have guaranteed the payment of all
interest and operating deficits. Distributions to stockholders are subject
to certain limitations under the terms of the loan agreement.
In August 1989, an agreement was entered into to increase the original loan
by an amount not to exceed $3,450,000. In July 1993, the Company extended
the maturity of this loan for two years. The provisions of the related
amended promissory note require monthly payments of interest plus $25,000
of principal, increasing to $41,667 on August 1, 1994. In addition, the
amended promissory note requires additional principal payments in amounts
equal to the excess of the immediately preceding fiscal year's cash flow,
as defined, over $900,000 on April 1, 1994 and 1995. A payment of $71,395
was made on April 1, 1994 for the 1993 fiscal year's cash flows.
In October 1995, the maturity of this loan was again extended for three
years effective as of July 1995. The provisions of the second amended
promissory note in the amount of $17,953,600 (remaining principal balance
at date of second promissory note) require monthly payments of interest
plus $41,667 of principal. In addition, the second amended promissory note
requires additional principal payments in amounts equal to the excess cash
flow, as defined, for the immediately preceding fiscal year (or for the
period from August 1, 1995 to December 31, 1996 for the first application
date) on each application date (February 15, 1997 and February 15th of each
calendar year thereafter).
At the Company's election, the interest rate on the loan may be either
1.75% above the prime rate or 3.0% above a LIBOR rate. The effective
interest rate as of December 31, 1995 was 8.8%.
5. COMMITMENTS AND CONTINGENCIES
As part of the franchise agreement with Holiday Inns Franchising, Inc., the
Company is obligated to pay monthly fees based on gross room revenues.
These fees include royalty fees at 4% (5% effective February 1997),
marketing fees at 1.5%, reservation fees at 1% and a monthly Holiday
reservation system fee of approximately $6 per guest room. The franchise
agreement expires in February, 2007.
F-59
<PAGE>
RAHN KEY WEST RESORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1995
As an additional condition of the franchise agreement, the Company is also
required to complete a Property Improvement Plan by January 1, 1997 at an
estimated cost to the Company of $800,000. If such plan is not completed on
time, Holiday Inn may terminate the franchise agreement.
6. RELATED PARTY TRANSACTIONS
During 1987, the Company entered into a management agreement with Rahn
Venture 1, Inc. which is affiliated through common ownership with the
Company's two majority stockholders. The agreement provides for payment of
an amount equal to 3% of gross revenues and 10% of net operating profit, as
defined. As of August 1, 1995, the management incentive fee (10% of net
operating profit) was eliminated. Management fee expense was $405,533 for
the year ended December 31, 1995 of which $18,320 was unpaid at December
31, 1995.
Legal services are rendered by a minority stockholder and fees paid in 1995
were $12,349.
Note payable with related party at December 31, 1995 is payable on demand.
The interest rate on the note is 1.75% above prime with an effective rate
of 10.25% at December 31, 1995.
7. SUPPLEMENTAL CASH FLOW INFORMATION
During 1995, the Company purchased $69,713 in equipment through the
issuance of a note payable to a bank.
F-60
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
LaSalle Hotel Properties:
We have audited the accompanying statements of revenues and expenses and
cash flows of the Le Meridien Dallas for the year ended January 31, 1997 and
for the period from February 1, 1997 to September 4, 1997. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying statements of revenues and expenses and cash flows were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and for inclusion in the Registration
Statement on Form S-11 of LaSalle Hotel Properties as described in note 1. The
presentation is not intended to be a complete presentation of the revenues and
expenses of the Le Meridien Dallas.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and expenses and cash flows described
in note 1 of the Le Meridien Dallas for the year ended January 31, 1997 and
for the period from February 1, 1997 to September 4, 1997 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
January 18, 1998
F-61
<PAGE>
LE MERIDIEN DALLAS
STATEMENTS OF REVENUES AND EXPENSES (NOTE 1)
YEAR ENDED JANUARY 31, 1997 AND PERIOD FROM FEBRUARY 1, 1997 TO SEPTEMBER 4,
1997
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1997
YEAR ENDED THROUGH
JANUARY 31, 1997 SEPTEMBER 4, 1997
---------------- -----------------
<S> <C> <C>
REVENUES:
Rooms...................................... $ 9,748,417 $6,190,815
Food and beverage.......................... 3,230,877 2,318,810
Other...................................... 577,535 341,836
----------- ----------
Total revenues............................... 13,556,829 8,851,461
----------- ----------
EXPENSES:
Rooms...................................... 2,731,882 1,595,819
Food and beverage.......................... 2,927,239 1,980,448
Other operating departments................ 280,470 154,603
Property maintenance and operations........ 1,284,334 845,890
Utilities.................................. 787,022 443,322
General and administrative................. 1,468,712 925,486
Sales and marketing........................ 1,142,036 753,479
Insurance.................................. 55,818 21,381
Property taxes............................. 409,395 263,503
----------- ----------
Total expenses............................... 11,086,908 6,983,931
----------- ----------
Excess of revenues over expenses............. $ 2,469,921 $1,867,530
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE>
LE MERIDIEN DALLAS
STATEMENTS OF CASH FLOWS (NOTE 1)
YEAR ENDED JANUARY 31, 1997 AND PERIOD FROM FEBRUARY 1, 1997 TO SEPTEMBER 4,
1997
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 1, 1997
YEAR ENDED THROUGH
JANUARY 31, 1997 SEPTEMBER 4, 1997
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Excess of revenues over expenses.......... $ 2,469,921 $ 1,867,530
Adjustments to reconcile excess of reve-
nues and expenses to net cash provided by
operating activities:
Decrease in guest and trade receivables,
net.................................... 142,233 127,810
Decrease in inventories................. 16,616 3,508
Decrease in prepaid expenses and other
current assets......................... 39,944 18,772
Decrease (increase) in accounts payable. (238,242) 211,558
Increase in accrued expenses............ (4,956) (235,745)
----------- -----------
Net cash provided by operating activities... 2,425,516 1,993,433
----------- -----------
Cash flows from investing activities--pur-
chase of fixed assets...................... (293,955) (84,153)
Cash flows from financing activities--
Net distributions to owner................ (2,187,209) (2,171,183)
Cash overdraft............................ -- 218,258
----------- -----------
Net cash used in financing activities..... (2,187,209) (1,952,925)
----------- -----------
Net decrease in cash........................ (55,648) (43,645)
Cash at beginning of period................. 99,293 43,645
----------- -----------
Cash at end of period....................... $ 43,645 $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-63
<PAGE>
LE MERIDIEN DALLAS
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JANUARY 31, 1997 AND THE PERIOD FROM FEBRUARY 1, 1997 TO SEPTEMBER
4, 1997
(1) ORGANIZATION, OPERATIONS, AND BASIS OF PRESENTATION
Le Meridien Dallas (the Hotel) is a 396 room hotel located in downtown
Dallas, Texas. The Hotel was owned by Forte USA, Inc. (the Owner) through
September 4, 1997, when it was sold to an affiliate of LaSalle Hotel
Properties. The accompanying financial statements include the revenues and
expenses and associated cash flows for the Le Meridien Dallas for the year
ended January 31, 1997 and the period February 1, 1997 through September 4,
1997. Certain revenues and expenses related to the ownership of the Hotel
including but not limited to depreciation, interest expense, and gains or
losses on disposition of assets, have been excluded from the accompanying
presentation since the related records were not available.
These financial statements have been presented for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
Regulation S-X and for inclusion in the Registration Statement on Form S-11 of
LaSalle Hotel Properties. The presentation is not intended to be a complete
presentation of the revenues and expenses of the Le Meridien Dallas.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, all highly liquid investments
with a maturity of three months or less when purchased are considered to be
cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Income Taxes
The Owner is not directly subject to income taxes because the results of its
operations are includable in the tax returns of its owners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) COMMITMENTS AND CONTINGENCIES
The Hotel is a member of a property association and has an ongoing
commitment to pay for common area maintenance expenses. These expenses are
included in the accompanying statements of revenues and expenses. The monthly
required payments are variable based on the monthly expenses of the
association. The Hotel's contributions to common area maintenance were
$503,260 for the year ended January 31, 1997 and $289,337 for the period from
February 1, 1997 through September 4, 1997.
The nature of the Hotel's operations exposes them to the risk of claims and
litigation in the normal course of business. Management believes that the
ultimate resolution of any outstanding matters will not have a material
adverse effect on the financial position or operations of the Hotel.
F-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Orleans Meridien Inc.,
in its capacity as general partner of Canal Street Hotels Limited
Partnership:
We have audited the accompanying balance sheets of Canal Street Hotels
Limited Partnership (a California limited partnership) as of December 31, 1996
and 1995, and the related statements of operations, changes in partners'
equity (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Canal Street Hotels
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. As discussed in Notes 3 and 7,
on November 24, 1996, the Partnership sold the hotel it operates and has no
remaining revenue generating assets. At December 31, 1996, the Partnership's
liabilities exceeded its assets by $8,080,227. Management currently expects
that the unpaid balance of its mortgage loan will be settled in future years,
although there can be no assurance that this will be the case. The above facts
raise substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from this uncertainty.
Arthur Andersen LLP
New Orleans, Louisiana,
May 14, 1997
F-65
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments.................... $ 3,116,834 $ 14,331,967
Restricted funds (Note 5)......................... -- 179,321
Accounts receivable, net of allowance of $106,543
in 1996 and $34,621 in 1995...................... 637,405 1,055,696
Inventories....................................... -- 222,240
Prepaid expenses.................................. -- 59,382
Due from general partner.......................... 68,655 --
----------- ------------
Total current assets............................ 3,822,894 15,848,606
----------- ------------
BUILDING AND EQUIPMENT:
Building and improvements......................... -- 41,314,746
Furniture and equipment........................... -- 14,238,913
----------- ------------
-- 55,553,659
Less-accumulated depreciation..................... -- (23,964,801)
----------- ------------
-- 31,588,858
----------- ------------
OTHER ASSETS........................................ -- 168,040
----------- ------------
Total assets.................................... $ 3,822,894 $ 47,605,504
=========== ============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................. $ 1,270,258 $ 1,218,915
Accrued expenses and other........................ -- 915,434
Accrued interest (Note 7)......................... 12,943 6,825,146
Accrued management fees........................... -- 629,596
----------- ------------
Total current liabilities....................... 1,283,201 9,589,091
MORTGAGE LOAN AND ACCRUED INTEREST (Note 7)......... 10,619,920 54,893,261
DUE TO MERIDIEN HOTELS, INC. (Note 7)............... -- 1,508,908
LOANS FROM GENERAL PARTNER (Note 4)................. -- 1,487,102
LOANS FROM FORMER PARTNERS (Note 4)................. -- 364,013
NOTE PAYABLE TO AFFILIATE OF GENERAL PARTNER (Note
7)................................................. -- 1,578,466
----------- ------------
Total liabilities............................... 11,903,121 69,420,841
----------- ------------
PARTNERS' DEFICIT (Note 4).......................... (8,080,227) (21,815,337)
----------- ------------
$ 3,822,894 $ 47,605,504
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
PAYROLL AND 1996 1995
COST OF RELATED OPERATING OPERATING OPERATING
REVENUE SALES EXPENSES EXPENSES INCOME(LOSS) INCOME(LOSS)
------------ ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DEPARTMENTS:
Rooms.................. $ 15,511,556 $ -- $ 2,019,012 $ 1,730,145 $11,762,399 $11,986,166
Food and beverage...... 3,700,396 999,068 1,730,140 482,310 488,878 374,526
Telephone.............. 618,734 90,425 178,388 45,087 304,834 369,989
Other.................. 1,224,501 82,998 240,451 38,414 862,638 794,313
------------ ---------- ----------- ----------- ----------- -----------
Total operating
departments......... 21,055,187 1,172,491 4,167,991 2,295,956 13,418,749 13,524,994
------------ ---------- ----------- ----------- ----------- -----------
UNDISTRIBUTED OPERATING
EXPENSES:
Administrative and
general............... -- -- 1,185,613 774,281 1,959,894 2,092,624
Marketing.............. -- -- 717,234 774,545 1,491,779 1,477,550
Energy costs........... -- -- -- 707,781 707,781 698,560
Property operation and
maintenance........... -- -- 489,315 575,641 1,064,956 1,187,968
------------ ---------- ----------- ----------- ----------- -----------
Total undistributed
operating expenses.. -- -- 2,392,162 2,832,248 5,224,410 5,456,702
------------ ---------- ----------- ----------- ----------- -----------
GROSS OPERATING PROFIT $ 21,055,187 $1,172,491 $ 6,560,153 $ 5,128,204 8,194,339 8,068,292
============ ========== =========== =========== ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (Note
7).................... (3,436,768) (4,034,140)
Depreciation and
amortization.......... (1,172,909) (1,372,001)
Lease expense.......... ( 9,592) (110,070)
Property taxes (Note
6).................... (848,851) (531,352)
Ground rents........... (371,976) (414,398)
Management fees (Note
6).................... (1,906,440) (1,169,074)
Professional fees...... (716,380) (118,455)
Insurance expense...... (40,451) (46,000)
Interest income........ 725,528 611,294
Gain on sale of hotel
(Note 3).............. 15,494,885 --
Miscellaneous income
(expense)............. (86,490) --
----------- -----------
7,630,556 (7,184,196)
----------- -----------
NET INCOME ............. $15,824,895 $ 884,096
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LOUISIANA
AND NEW
CALIFORNIA ORLEANS/ CMS NEW ORLEANS NEW ORLEANS
HOTELS NEWPORT INVESTORS MERIDIEN, GRANDE,
PARTNERSHIP BEACH LIMITED INC. INC. TOTAL
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994....... $(13,099,699) $(5,960,142) $(1,179,052) $(1,230,270) $(1,230,270) $(22,699,433)
Net Loss............... 457,962 209,531 40,669 87,967 87,967 884,096
------------ ----------- ----------- ----------- ----------- ------------
DECEMBER 31, 1995....... (12,641,737) (5,750,611) (1,138,383) (1,142,303) (1,142,303) (21,815,337)
Net income from January
1, 1996 to August 27,
1996.................. 53,793 24,612 4,777 10,333 10,332 103,847
Transfer of general
partner interest
(Note 8).............. -- -- -- (1,131,971) 1,131,971 --
Net income from August
28, 1996 to December
31, 1996.............. 8,143,503 3,725,888 723,168 3,128,489 -- 15,721,048
Distributions.......... (950,772) (433,842) (85,049) (620,122) -- (2,089,785)
------------ ----------- ----------- ----------- ----------- ------------
DECEMBER 31, 1996....... $ (5,395,213) $(2,433,953) $ (495,487) $ 244,426 $ -- $ (8,080,227)
============ =========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
OPERATING CASH FLOWS:
Net income......................................... $ 15,824,895 $ 884,096
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of hotel............................. (15,494,885) --
Depreciation and amortization 1,172,909 1,372,001
Interest accretion................................ -- 106,999
Changes in assets and liabilities--
Accounts receivable............................. 418,291 (404,740)
Inventories..................................... (11,165) 48,144
Prepaid expenses................................ 59,382 59,249
Due from general partners....................... (68,655) --
Other assets.................................... 168,040 22,354
Restricted funds................................ 179,321 (131,173)
Accounts payable................................ 51,343 174,004
Accrued expenses................................ (915,434) 115,325
Accrued interest................................ (6,812,203) 2,072,359
Accrued management fees......................... (629,596) 459,013
------------ -----------
Net cash provided by (used in) operating
activities.................................... (6,057,757) 4,777,631
------------ -----------
INVESTING ACTIVITY CASH FLOWS:
Net proceeds from sale of hotel.................... 46,144,239 --
Capital expenditures............................... -- ( 89,091)
------------ -----------
Net cash provided by (used in) investing
activities.................................... 46,144 239 (89,091)
------------ -----------
FINANCING ACTIVITY CASH FLOWS:
Payments on debt.................................. (49,211,830) --
Distributions to partners......................... (2,089,785) --
------------ -----------
Net cash used in financing activities.......... (51,301,615) --
------------ -----------
NET INCREASE (DECREASE) IN CASH..................... (11,215,133) 4,688,540
CASH, beginning of year............................. 14,331,967 9,643,427
------------ -----------
CASH, end of year................................... $ 3,116,834 $14,331,967
============ ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............................. $ 10,248,971 $ 1,914,591
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION:
Canal Street Hotels Limited Partnership (the Partnership) was formed May 10,
1982, to develop and operate a hotel located in New Orleans, Louisiana. The
financial statements include assets, liabilities and results of operations
that relate to the Partnership as well as the hotel operating accounts.
On July 16, 1991, the Partnership filed a voluntary petition for relief from
its creditors under Chapter 11 of the U.S. Bankruptcy Code. Under Chapter 11,
certain claims against the Partnership in existence prior to the filing of the
petition for relief are stayed while the Partnership continues business
operations as Debtor-in-Possession, subject to the jurisdiction of the
Bankruptcy Court (the Court). On February 27, 1992, after satisfying all of
the major provisions of its confirmed plan of reorganization, the Partnership
emerged from bankruptcy.
In connection with the plan of reorganization, the partners amended and
restated the partnership agreement in its entirety to reflect, among other
things, a revision of the partners' ownership interests. In addition, upon
confirmation of the Partnership's plan of reorganization, New Orleans Meridien
Inc. (NOMI) sold 50% of its general partner interest to an unrelated third
party, New Orleans Grande, Inc. (NOGI), an affiliate of The Grande
International Hotel Holdings, Ltd. (The Grande), effective February 27, 1992.
Pursuant to the new partnership agreement and the agreement with The Grande,
NOMI and NOGI served as general partners each holding a 9.95% interest until
August 27, 1996, at which time NOMI acquired NOGI's general partner interest
resulting in NOMI serving as the sole general partner with a 19.9% interest
(see Note 8). The limited partners, CMS Investors Limited (CMS), Louisiana and
California Hotels Partnership (L&C), and New Orleans and Newport Beach Hotels
Partnership (NONB), hold 4.6%, 51.8% and 23.7% interests, respectively.
On November 24, 1996, the Partnership sold the hotel (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Inventories
Inventories of food, beverage and operating supplies are stated at the lower
of cost (first-in, first-out method) or market.
Building and Equipment
Building and equipment are stated at cost including all construction and
preopening costs. Depreciation on the building and equipment is provided on
the straight-line basis over 40 and 10 years, respectively.
Income Taxes
No provision is made for Federal or state income taxes since these taxes are
the responsibility of the partners. The tax returns, qualification of the
Partnership as such for tax purposes and the amount of distributable
partnership income or loss are subject to examination by the Federal and state
taxing authorities. If examinations result in changes, the tax liabilities of
the partners could be changed accordingly.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
F-70
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
3. SALE OF HOTEL:
On November 24, 1996, the Partnership sold the hotel assets for $48,000,000
to an unrelated third party (the Purchaser). Upon closing, the Partnership
transferred its interests in the ground lease, the building and related
furniture, fixtures and equipment, inventories, permits and other intangibles
comprising the hotel to the Purchaser. The Partnership incurred expenses of
$1,105,762 for brokerage fees and other costs relating to the sale, and
recognized a gain on the sale of hotel assets of $15,494,885. Proceeds from
the sale along with other available funds, were used to repay a portion of the
Partnership debt obligations. The remaining balance of the Partnership's debt
obligations is expected to be settled in future years.
4. DISTRIBUTIONS AND ALLOCATIONS TO PARTNERS:
In accordance with the partnership agreement as amended and restated, the
$1,487,102 noninterest-bearing loan is payable to NOMI (on August 27, 1996,
NOMI purchased NOGI's 50% interest in this loan, see Note 7) is to be repaid
out of the net operating cash flow or net capital proceeds before
distributions can be made to the partners. Additionally, pursuant to an
agreement among the partners and certain former partners, noninterest-bearing
loans totalling $364,013 payable to these former partners are to be repaid on
a basis equal to the loan from NOMI. During 1996, both of these loans were
repaid with the proceeds from the sale of the hotel (see Note 3).
Upon satisfaction of the above requirements, net operating cash flow and net
capital proceeds are to be distributed first to NOMI, on an equal basis, up to
an aggregate of $255,000, and then to all the partners in proportion to their
respective ownership interests. Net operating cash flow is defined as net
operating income or loss for tax purposes, increased by noncash expenses and
reductions in required reserves, and decreased by loan principal and interest
repayments, capital expenditures, and increases in required reserves. Subject
to retention of reserves in accordance with the partnership agreement,
distributions of net operating cash are to be made no less frequently than
quarterly.
For Federal and state income tax purposes, all income, gains, losses,
deductions and credits are to be allocated to the partners in accordance with
their respective percentage ownership interests, except for certain partner
nonrecourse deductions, which are to be allocated to the partners who bear the
related economic risk of loss.
5. RESTRICTED FUNDS:
Under the revised hotel management agreement, 3% of revenues are to be
reserved annually in restricted funds for the replacement of furniture,
fixtures and equipment; however, the practice of the Partnership and Meridien
was to accrue this obligation at 2% of revenues. At December 31, 1995,
$179,321 calculated using 2% of revenues, was restricted for this purpose. No
amounts were restricted at December 31, 1996, due to the sale of the hotel
during 1996 (see Note 3).
6. COMMITMENTS AND CONTINGENCIES:
Ground Lease
The Partnership leased the land under the hotel for 99 years beginning March
28, 1982 for $425,000 annually, for each of the first 10 years following the
construction term. During the subsequent 10 years, the annual rentals are to
be lesser of (i) 10% of the fair market value or (ii) the greater of 2 1/2% of
total room revenues or 1 1/4% of total revenues, but in no event will be less
than $425,000. In connection with the sale of the hotel during 1996, the
rights and obligations under the land lease were assigned to the Purchaser
(see Note 3).
F-71
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
Operating Leases
The Partnership leases various equipment under long-term operating lease
arrangements. All existing operating leases expired during 1995. Rental
expense for operating leases for the year ended December 31, 1995, was
$110,070.
Hotel Management
On February 27, 1992, the Partnership signed a revised management agreement
with Meridien Hotels, Inc. (Meridien, an affiliate of NOMI) which is to expire
on December 31, 2012. Meridien has the right to extend the term of the
agreement for up to three successive 20-year periods. A basic monthly
management fee amounting to 3.5% of hotel revenues and an incentive fee based
on net operating profits, as defined per the agreement, are payable to
Meridien. In addition to the basic and incentive management fees, Meridien is
entitled, subject to certain provisions, to a supplemental fee of 13.5% of the
Hotel's available cash from all sources, as defined. The management agreement
also calls for the Partnership to contribute a monthly commercial fee of 1% of
total room revenue to a global advertising and promotions fund managed by
Meridien, assuming certain conditions are met.
The management agreement calls for Meridien to earn basic management fees of
3.5% of revenues. The Partnership has accrued basic management fees of
$630,004 and $668,538 (calculated using 3% of revenues), incentive fees of
$467,471 and $450,532, and commercial fees of $155,116 and $162,588, during
the years ended December 31, 1996 and 1995, respectively. During 1996, the
Partnership recalculated the basic management fee for the period from February
27, 1992 to November 24, 1996, using 3.5% of revenues and paid Meridien an
additional $516,872 for basic management fees relating to this period. At
December 31, 1995, $629,596 was payable to Meridien for these fees. No amounts
were owed to Meridien at December 31, 1996.
In connection with the sale of the Hotel, the Partnership paid Meridien
Hotels Investment Group, Inc. a fee of $750,000 to facilitate the termination
of the management agreement. This amount is included with the gain on the sale
of the Hotel in the accompanying statement of operations.
Partnership Management Expenses
NOMI and NOGI together charged the Partnership a total of $50,000 in 1995.
During 1996, the Partnership paid $293,486 of management expenses to NOMI.
Property Tax Protest
The Partnership paid its 1989, 1990 and a portion of 1991 and 1992 billed
property taxes under protest. The Partnership has filed suit against the
Louisiana Tax Commission and the Director of Finance for the City of New
Orleans because the Partnership believes that the assessor incorrectly
determined the fair market and assessed values of its property. It is not
possible to determine what, if any, recovery may be obtained from this suit
and therefore property taxes have been recorded as billed for all years.
7. PARTNERSHIP DEBT:
On February 27, 1992, the Partnership's mortgage lender sold all of its
rights and interests in its loan to the Partnership, which was then in
default, to Universal Hotel Finance Company, Inc. (Universal, an affiliate of
NOMI). Upon the confirmation of the Partnership's plan of reorganization,
Universal sold 50% of its interest in the mortgage loan to Grande Hotel
Finance Company, Inc. (GHFC), an affiliate of The Grande, effective
F-72
<PAGE>
CANAL STREET HOTELS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
February 27, 1992. Consequently, the Partnership was indebted to Universal and
GHFC for $40,999,000 principal and $13,894,261 interest which were outstanding
under the mortgage loan. The Partnership advanced funds for Universal and GHFC
to pay closing costs of $767,437 and offset this advance against pre-petition
interest accrued. The loan bears interest at the original mortgage lender's
prime plus .5% (8.75% at December 31, 1995), and is due on demand by Universal
and GHFC. On August 27, 1996, Universal purchased GHFC's 50% interest in the
mortgage loan (see Note 8).
Concurrent with Universal's acquisition of the mortgage loan, it executed a
cash flow agreement with the Partnership which, among other things, stipulates
repayment terms of the loan. Under the cash flow agreement and the agreement
between Universal and GHFC, the Partnership continued to accrue interest on
the principal amount at the stated interest rate and made quarterly payments,
to be applied to interest, of approximately $350,000. On February 26, 1997, a
$5,000,000 principal reduction was to be required. After February 26, 1997,
the Partnership was to make quarterly payments to cover interest and annual
principal reductions (totalling $21,500,000) through February 26, 2007. The
remainder of the principal and interest owed was to be repaid through an
additional stipulation in the cash flow agreement which requires the
Partnership to pay 90.64% of its net available cash to Universal and GHFC,
beginning on February 27, 1992, as defined in the cash flow agreement.
During 1996, the Partnership repaid $26,500,000 of principal on the mortgage
loan. Under the cash flow agreement an additional $25,926,103 was paid to
Universal which was first applied to accrued interest then to principal. The
remaining unpaid principal balance of $10,619,920 is expected to be settled in
future years.
Under a cash shortfall agreement dated May 21, 1982, Meridien agreed to
provide up to $1,200,000 to fund operating losses occurring in the first six
years of operations. As of December 31, 1995, Meridien had advanced $1,200,000
under the terms of this funding arrangement. Interest of $308,908 was accrued
on this advance, at the prime rate, through the July 16, 1991 bankruptcy
filing. In December 1992, interest accruals were reinstated on this advance.
During 1996 and 1995, $89,975 and $106,999, respectively, was accrued at a
rate based on Meridien's cost of funds. During 1996, the cash shortfall loan
plus accrued interest was repaid with proceeds from the sale of the hotel (see
Note 3).
On February 27, 1992, the Partnership issued a $3,100,000 zero coupon note
to Worldwide Hotel Finance Company, Inc. (Worldwide, an affiliate of NOMI) for
$1,251,000. During the years ended December 31, 1996 and 1995, the Partnership
accreted $88,436 and $92,611, respectively, of discount on the note using the
effective interest rate of 6.25%. The note had an original maturity of
February 28, 2007; however, any portion of it could have been converted, at
any time, at the sole discretion of Worldwide, into a limited partner interest
in the Partnership of up to 59.1%. During 1996, the balance outstanding on the
zero coupon note was repaid with proceeds from the sale of the hotel (see
Note 3).
8. GENERAL PARTNER TRANSACTIONS:
On August 27, 1996, NOMI and NOGI, and their respective affiliates entered
into a transfer coordination agreement whereby the Meridien affiliates
acquired all of the outstanding equity, debt, and other interests in the
Partnership held by the Grande affiliates, in exchange for cash. In connection
with the transfer of such interests, release agreements were executed between
the Grande affiliates and the Meridien affiliates and between the Grand
affiliates and the Partnership for any potential claims against one another.
F-73
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees LaSalle Hotel Properties:
We have audited the accompanying balance sheet of MSCC Limited Partnership
as of December 29, 1995, and the related statements of operations, changes in
partners' capital (deficit), and cash flows for the fiscal year ended December
29, 1995. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MSCC Limited Partnership
as of December 29, 1995, and the results of its operations and its cash flows
for the fiscal year ended December 29, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
January 30, 1998
F-74
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
MSCC Limited Partnership:
We have audited the accompanying balance sheet of MSCC Limited Partnership
(the "Partnership," a Connecticut limited partnership) as of January 3, 1997,
and the related statements of operations, changes in partners' capital
(deficit) and cash flows for the fiscal year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MSCC Limited Partnership
as of January 3, 1997, and the results of its operations and its cash flows
for the fiscal year then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 6, 1997.
F-75
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 29, 1995 AND JANUARY 3, 1997
<TABLE>
<CAPTION>
DECEMBER JANUARY 3,
29, 1995 1997
ASSETS ----------- -----------
<S> <C> <C>
Investment in real estate, net of accumulated
depreciation (Note 3)............................... $32,266,353 $31,332,767
Other assets:
Cash and cash equivalents.......................... 1,615,421 1,391,361
Property improvement fund (Note 4)................. 877,438 1,450,636
Accounts receivable................................ 831,993 1,454,474
Inventories........................................ 695,031 763,198
Deferred loan costs, net of accumulated
amortization of $40,461 and $113,478 in fiscal
1995 and 1996, respectively....................... 288,117 215,100
Prepaids and other assets.......................... 13,149 --
----------- -----------
4,321,149 5,274,769
----------- -----------
Total assets..................................... $36,587,502 $36,607,536
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage payable (Note 4)............................ $31,082,734 $29,790,180
Note payable (Note 4)................................ 326,903 356,324
Advances from SGRA................................... 254,671 259,171
Accounts payable and accrued expenses................ 1,088,543 1,371,398
Deferred revenue..................................... 625,370 665,788
Due to Marriott International (Note 5)............... 602,683 630,768
----------- -----------
Total liabilities................................ 33,980,904 33,073,629
General Partner...................................... 4,473,156 5,384,751
Limited Partner...................................... (1,866,558) (1,850,844)
----------- -----------
Total Partners' capital.......................... 2,606,598 3,533,907
----------- -----------
Total liabilities and partners' capital.......... $36,587,502 $36,607,536
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-76
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1995 AND JANUARY 3, 1997
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
----------- -----------
<S> <C> <C>
REVENUES
Rooms ............................................. $10,200,792 $10,988,386
Food and beverage ................................. 9,709,530 10,757,275
Golf .............................................. 5,102,874 5,430,490
Miscellaneous ..................................... 891,510 1,000,716
----------- -----------
Total revenues................................... 25,904,706 28,176,867
----------- -----------
EXPENSES
Departmental expenses.............................. 12,960,553 14,214,171
General and administrative......................... 1,251,258 1,349,963
Advertising and sales.............................. 1,383,465 1,470,970
Utilities.......................................... 740,345 779,963
Repairs and maintenance............................ 1,070,713 1,143,476
Management fees (Note 5)........................... 1,781,845 1,951,987
Other expenses..................................... 762,371 802,255
Real estate and personal property taxes............ 785,114 738,011
Miscellaneous...................................... 12,621 14,394
Depreciation and amortization...................... 1,833,005 1,737,052
Interest expense net of interest income of $43,127
and $39,958 in fiscal 1995 and 1996, respectively. 2,567,788 2,379,881
General and administrative expenses................ -- 23,313
----------- -----------
Total expenses................................... 25,149,078 26,605,436
----------- -----------
Net income........................................... $ 755,628 $ 1,571,431
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-77
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1995, AND JANUARY 3, 1997
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 30, 1994............... $ 3,999,968 $(1,859,297) $ 2,140,671
Distributions to partners.............. (1,626,020) (14,817) (1,640,837)
Contributions from partners............ 1,351,136 -- 1,351,136
Net income............................. 748,072 7,556 755,628
----------- ----------- -----------
Balance, December 29, 1995............... 4,473,156 (1,866,558) 2,606,598
Distributions to partners.............. (1,936,676) -- (1,936,676)
Contributions from partners............ 1,292,554 -- 1,292,554
Net income............................. 1,555,717 15,714 1,571,431
----------- ----------- -----------
Balance, January 3, 1997................. $ 5,384,751 $(1,850,844) $ 3,533,907
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-78
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1995 AND JANUARY 3, 1997
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 755,628 $ 1,571,431
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 1,833,005 1,737,052
Amortization of discount on note payable........... 26,992 29,421
Changes in operating assets and liabilities:
Accounts receivable............................... 146,387 (622,481)
Inventories....................................... 1,992 (68,167)
Prepaid expenses.................................. 3,126 13,149
Accounts payable and accrued expenses............. 274,028 282,855
Other liabilities................................. 331,291 32,585
Deferred revenue.................................. 298,420 40,418
----------- -----------
Net cash provided by operating activities....... 3,670,869 3,016,263
----------- -----------
Cash flows from investing activities:
Withdrawal from (funding of) property improvement
fund............................................... 841,275 (573,198)
Capital improvement expenditures.................... (2,284,825) (730,449)
----------- -----------
Net cash used in investing activities........... (1,443,550) (1,303,647)
----------- -----------
Cash flows from financing activities:
Payment of deferred loan costs...................... (336,003) --
Partners' contributions............................. 1,351,136 1,292,554
Partners' distributions............................. (1,640,837) (1,936,676)
Principal payments on mortgage loan................. (1,057,559) (1,292,554)
----------- -----------
Net cash used in financing activities........... (1,683,263) (1,936,676)
----------- -----------
Increase (decrease) in cash and cash equivalents..... 544,056 (224,060)
Cash and cash equivalents at beginning of fiscal
year................................................ 1,071,365 1,615,421
----------- -----------
Cash and cash equivalents at end of fiscal year...... $ 1,615,421 $ 1,391,361
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest.............................. $ 2,544,965 $ 2,407,777
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-79
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 29, 1995 AND JANUARY 3, 1997
1. THE PARTNERSHIP:
General
MSCC Limited Partnership, a Connecticut limited partnership (the
"Partnership"), was formed on May 4, 1988, for the purpose of acquiring,
owning and operating a 300-room resort hotel, Marriott's Seaview Resort (the
"Resort") located in New Jersey.
The Partnership is 99 percent owned by Seaview Golf Resort Associates
Limited Partnership ("SGRA") and 1 percent owned by Host Marriott Corporation
("Host Marriott"). The general partner is SGRA and the limited partner is Host
Marriott.
Capital Contributions
The general and limited partners have made capital contributions to the
Partnership in the following amounts:
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER
----------- -------
<S> <C> <C>
Aggregate capital contributions through January 3,
1997.................................................. $10,563,690 $80,000
</TABLE>
Pursuant to the partnership agreement, there are no additional capital
contributions required.
Allocations of Profits and Losses
In accordance with the partnership agreement, SGRA is generally allocated 99
percent of the profits and 35 percent of the losses, with the balance
allocated to Host Marriott. Upon an extraordinary event such as the sale,
exchange, refinancing, or condemnation of the property, profits are allocated
35 percent to SGRA and 65 percent to Host Marriott, until each partner has
been allocated profits from such an event equal to the sum of all prior losses
incurred by the Partnership, reduced by allocations of profits from any prior
extraordinary events. Any remaining profits are then allocated 99 percent to
SGRA and 1 percent to Host Marriott.
Distributions of Available Cash
Positive net cash flow of the Partnership resulting from normal operations
is distributed 99 percent to SGRA and 1 percent to Host Marriott. Any cash
from an extraordinary event, as described above, is used for the repayment of
debts and liabilities of the Partnership, other than debts and liabilities
owed to the partners, and for the establishment of any reserves that the
Partnership may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations. Any remaining cash from such events is distributed
99 percent to SGRA and 1 percent to Host Marriott.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
For purposes of the statements of cash flows, all highly liquid investments
with a maturity of three months or less when purchased are considered to be
cash equivalents.
Income Taxes
No provision for income taxes is made in the financial statements of the
Partnership because, as a partnership, it is not subject to income taxes. The
tax effect of its activities accrues to the partners.
Investment in Real Estate
Investment in real estate is stated at cost less accumulated depreciation.
Depreciation is computed primarily using the straight-line method for
building, building improvements and leasehold improvements and double
declining balance methods for furniture, fixtures, and equipment. The building
and building improvements are depreciated over periods ranging from 31.5 to 39
years. The leasehold improvements are primarily depreciated over 15 years. The
lives used in computing depreciation for furniture, fixtures, and equipment
range from five to seven years.
F-80
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement requires that the majority of long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. Implementation of
this statement had no impact on the accompanying financial statements.
Inventories
Inventories include food, beverage, china, silverware, linen and glassware
used for operations and are carried at cost, using a method which approximates
the first-in, first-out (FIFO) basis. Gift shop inventory is valued at the
lower of cost or market, determined by the retail inventory method.
Deferred Loan Costs
The Partnership capitalized certain costs in connection with obtaining and
extending the financing for the property. These costs are being amortized
using the straight-line method over the life of the loan and extension.
Deferred Revenue
Deferred revenue includes billed membership and locker dues that have not
been earned.
Fiscal Year
The Partnership's fiscal year comprises 52 or 53 weeks, ending on the Friday
closest to December 31. Fiscal 1995 was a 52-week year ended on December 29,
1995 and fiscal 1996 was a 53-week year ended on January 3, 1997.
Concentration of Risk
The Partnership's sole hotel property is located in Absecon, New Jersey. The
Partnership's profitability is highly dependent on golf tourism as a source of
operating revenues. The golf tourism business is concentrated during the
summer months. Unfavorable weather or economic conditions could adversely
affect the results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. INVESTMENT IN REAL ESTATE
Investment in real estate as of December 29, 1995, and January 3, 1997 is as
follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
------------ ------------
<S> <C> <C>
Land.......................................... $ 4,951,230 $ 4,951,230
Building...................................... 27,817,278 27,817,278
Furniture and fixtures........................ 9,134,274 10,319,047
Building and leasehold improvements........... 4,875,610 5,189,687
Construction in progress...................... 899,552 114,061
------------ ------------
47,677,944 48,391,303
Less accumulated depreciation............. (15,411,591) (17,058,536)
------------ ------------
$ 32,266,353 $ 31,332,767
============ ============
</TABLE>
F-81
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT:
Mortgage Payable
The Partnership is liable under a mortgage loan to a bank in the original
principal amount of $33,000,000.
The maturity date of the loan is August 1, 1999. The interest rate options
as elected in advance by the Partnership effective May 3, 1995, are the LIBOR
rate, as defined, plus 200 basis points or the bank's prime rate, as defined,
plus 100 basis points. The interest rate at January 3, 1997 was 7.625%. The
agreement also requires that net cash flow, as defined, be deposited in a
working capital/interest reserve account to the extent necessary to maintain a
balance of $2,000,000 and from May 1, 1995, through April 30, 1997, or until
the principal balance has been reduced to $26,000,000, the Partnership is also
required to remit 75 percent of net cash flow to the lender to curtail the
loan. After the outstanding principal balance has been reduced to $26,000,000,
the Partnership is required to remit 50 percent of net cash flow to the lender
to curtail the loan. Principal payments on the loan amounted to $1,292,554 and
$1,057,559, in fiscal 1996 and 1995, respectively.
The working capital/interest reserve account, containing $2,132,854 at
January 3, 1997 is held by SGRA. The accompanying financial statements do not
reflect the working capital interest reserve account of SGRA as it is an
obligation of SGRA. In the event of a foreclosure, Host Marriott has
guaranteed up to $5,000,000 of the mortgage. The real estate of the
Partnership, the working capital/interest reserve account, and the property
improvement fund have been pledged as collateral for the mortgage loan.
The Partnership is required to contribute funds equal to 5.5 percent of
gross revenues to the property improvement fund, as specified by the mortgage
loan agreement. These funds are held in escrow, as required by the lender, to
be used for renovation and refurbishment of the property. The required
contributions for fiscal years ended 1996 and 1995, were approximately
$1,550,000 and $1,425,000, respectively.
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms and maturities, the management of the Partnership
believes that the mortgage payable is stated at fair value.
Note Payable
In connection with the purchase of the property from Marriott, the
Partnership issued a note payable to the seller. The note has no stated
interest rate. This note is recorded at its net present value, based on a
discount rate of approximately 9 percent, of $326,903, and $356,324 at
December 29, 1995 and January 3, 1997, respectively. The note matures in 2003,
when the principal amount of $652,537 is due in full. It was not practicable
to estimate the fair value of the note payable, due to the nature of the note,
the circumstances surrounding its issuance, and the absence of quoted market
prices for similar instruments.
5. COMMITMENTS:
Management Agreement
Marriott International ("Marriott") is appointed under the management
agreement, which expires in 2008, with one five-year renewal option held by
the Partnership and/or five, ten year renewal options held by Marriott as the
agent to maintain, operate, manage, supervise, rent and lease the hotel on the
Partnership's behalf. In consideration of Marriott's responsibilities under
the management agreement, the Partnership pays a base management fee of 3
percent of gross revenues of the property. The base management fee is paid in
full each year.
In addition, the management agreement requires the Partnership to pay
Marriott an incentive management fee based on 20 percent of operating profit,
as defined in the management agreement. For the fiscal years ended December
29, 1995 and January 3, 1997, Marriott earned $1,781,845 and $1,951,987,
respectively, in base and incentive management fees. Payment of the incentive
management fee is based upon available cash flow after debt service, as
defined in the partnership agreement.
F-82
<PAGE>
MSCC LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the terms of the Management Agreement, Marriott provides the
Resort with various services and supplies, including marketing, reservations,
and insurance.
The management agreement also provides Marriott a right of first refusal for
the sale or lease of the property or the right to terminate the management
agreement upon sale.
6. GROUND LEASE:
The Partnership is a lessee with respect to a ground lease of approximately
160 acres which are currently being utilized as a golf course for the benefit
of the Resort. The ground lease terminates in December 2012, with fifteen
successive renewal options, each for a ten-year term. The lease requires
annual rental payments equal to $1. The landlord, an affiliate of Marriott,
has certain rights for access for non-exclusive use of the golf course. Under
the terms of the ground lease, the Resort pays all operating costs of the golf
course including maintenance, insurance and real estate and personal property
taxes.
F-83
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees LaSalle Hotel Properties:
We have audited the accompanying statements of revenues and expenses and
cash flows of Marriott's Seaview Resort for the period from January 4, 1997 to
November 7, 1997. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying statements of revenues and expenses and cash flows were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and for inclusion in the Registration
Statement on Form S-11 of LaSalle Hotel Properties as described in note 1. The
presentation is not intended to be a complete presentation of the revenues and
expenses of Marriott's Seaview Resort.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and expenses and cash flows described
in note 1 of Marriott's Seaview Resort for the period from January 4, 1997 to
November 7, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
January 30, 1998
F-84
<PAGE>
MARRIOTT'S SEAVIEW RESORT
STATEMENT OF REVENUES AND EXPENSES (NOTE 1)
PERIOD FROM JANUARY 4, 1997 TO NOVEMBER 7, 1997
<TABLE>
<S> <C>
REVENUES
Rooms............................................................. $10,416,122
Food and beverage................................................. 9,962,325
Golf.............................................................. 5,749,499
Miscellaneous..................................................... 890,684
-----------
Total revenues................................................. 27,018,630
-----------
EXPENSES:
Rooms............................................................. 2,161,552
Food and beverage................................................. 7,245,599
Golf.............................................................. 3,007,507
Other operating departments....................................... 636,680
Repairs and maintenance........................................... 1,002,621
Utilities......................................................... 610,148
General and administrative........................................ 1,249,387
Sales and marketing............................................... 1,366,861
Real estate and personal property taxes (Note 4).................. 638,475
Management fees................................................... 2,044,994
Other expenses.................................................... 849,330
-----------
Total expenses................................................. 20,813,154
-----------
Excess of revenues over expenses................................... $ 6,205,476
-----------
</TABLE>
See accompanying notes to financial statements.
F-85
<PAGE>
MARRIOTT'S SEAVIEW RESORT
STATEMENT OF CASH FLOWS (NOTE 1)
PERIOD FROM JANUARY 4, 1997 TO NOVEMBER 7, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Excess of revenues over expenses................................. $ 6,205,476
Adjustments to reconcile excess of revenues over expenses to net
cash provided by operating activities:
Increase in receivables, net................................... (1,941,578)
Increase in inventories........................................ (69,326)
Increase in prepaid expenses and other assets.................. (7,055)
Increase in accounts payable................................... 1,930,847
Increase in advance deposits................................... 135,497
Increase in gift certificates.................................. 50,432
Decrease in unearned revenue................................... (589,770)
Decrease in accrued expenses................................... (247,799)
-----------
Net cash provided by operating activities........................ 5,466,724
-----------
Cash flows from investing activity--purchase of fixed assets...... (1,176,879)
-----------
Cash flows from financing activity--net distributions to owner.... (5,028,600)
-----------
Net decrease in cash.............................................. (738,755)
Cash at beginning of period....................................... 2,821,832
-----------
Cash at end of period............................................. $ 2,083,077
-----------
</TABLE>
See accompanying notes to financial statements.
F-86
<PAGE>
MARRIOTT'S SEAVIEW RESORT
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 4, 1997 TO NOVEMBER 7, 1997
(1) ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
Marriott's Seaview Resort (the "Resort") is a 300 room hotel located in New
Jersey. The Resort was owned by MSCC Limited Partnership (the "Partnership")
through November 7, 1997, when it was sold to an affiliate of LaSalle Hotel
Properties. The accompanying financial statements include the revenues and
expenses and associated cash flows for the Resort for the period from January
4, 1997 to November 7, 1997. Certain revenues and expenses related to the
ownership of the Resort including but not limited to depreciation, interest
expense, interest income and gains or losses on disposition of assets, have
been excluded from the accompanying presentation since such amounts pertain to
the Partnership and not resort operations and the related records were not
available.
These financial statements have been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
Regulation S-X and for inclusion in the Registration Statement on Form S-11 of
LaSalle Hotel Properties. The presentation is not intended to be a complete
presentation of the revenues and expenses and cash flows of the Marriott's
Seaview Resort.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For the purpose of the statement of cash flows, all highly liquid
investments with a maturity of three months or less when purchased are
considered to be cash equivalents.
Inventories
Inventories include food and beverage and golf pro shop merchandise which
are valued at the lower of cost (first-in, first-out) or market.
Income Taxes
The Resort is not directly subject to income taxes because the results of
its operations are included in the tax returns of its owners.
Membership Fees
Golf course membership fees are recognized as revenue using the straight-
line method over the membership period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) MANAGEMENT AGREEMENT
Marriott International ("Marriott") is appointed under the management
agreement, which expires in 2008, with one five-year renewal option held by
the Partnership and/or five, ten-year renewal options held by Marriott as the
agent to maintain, operate, manage, supervise, rent and lease the resort on
the Partnership's behalf. In
F-87
<PAGE>
MARRIOTT'S SEAVIEW RESORT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
consideration of Marriott's responsibilities under the management agreement,
the Partnership pays a base management fee of 3% of gross revenues of the
Resort.
In addition, the management agreement requires the Partnership to pay
Marriott an incentive management fee based on 20% of operating profit, as
defined in the management agreement. For 1997, Marriott earned $2,044,994 in
base and incentive fees. Payment of the incentive fee is based upon available
cash flow after debt service, as defined in the partnership agreement of MSCC
Limited Partnership.
Pursuant to the terms of the management agreement, Marriott provides the
Resort with various services and supplies, including marketing, reservations,
and insurance. The costs incurred relating to these arrangements may have been
significantly different had they been provided by an independent third party.
(4) GROUND LEASE
The Partnership is a lessee with respect to a ground lease of approximately
160 acres which are currently being utilized as a golf course for the benefit
of the Resort. The ground lease terminates in December 2012, with fifteen
successive renewal options, each for a ten-year term. The lease requires
annual rental payments equal to $1. The landlord, an affiliate of Marriott,
has certain rights for access for non-exclusive use of the golf course. Under
the terms of the ground lease, the Resort pays all operating costs of the golf
course including maintenance, insurance and real estate and personal property
taxes.
(5) CONCENTRATION OF RISK
The profitability of the Resort is highly dependent on golf tourism as a
source of operating revenues. The source of such business is concentrated
during the summer months. Unfavorable weather conditions or economic
conditions could adversely affect the results of operations.
F-88
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees LaSalle Hotel Properties
We have audited the accompanying balance sheets of the LaGuardia Airport
Marriott Managed by ERE Yarmouth as of December 31, 1995 and 1996, and the
related statements of operations, owners' equity, and cash flows for each of
the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement on Form S-11 of
LaSalle Hotel Properties as described in note 1.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the LaGuardia Airport
Marriott Managed by ERE Yarmouth as of December 31, 1995 and 1996, and the
results of its operations, and its cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
January 30, 1998
F-89
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
------------ ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate, at cost
Land..................................... $ 4,623,000 4,623,000 --
Buildings and improvements............... 42,233,363 44,223,582 --
Equipment................................ 10,230,364 10,841,903 --
------------ ---------- ----------
57,086,727 59,688,485 --
Less: accumulated depreciation........... 19,495,998 21,227,823
------------ ---------- ----------
Net property and equipment............. 37,590,729 38,460,662 --
------------ ---------- ----------
Property held for sale (note 3)........... -- -- 39,365,088
Cash and cash equivalents................. 1,763,157 1,350,812 500,152
Escrow deposits (note 6).................. 1,253,477 826,819 1,091,353
Accounts and other receivables............ 680,543 1,032,825 1,188,674
Other assets (note 4)..................... 1,039,137 1,053,759 719,154
------------ ---------- ----------
Total assets........................... $ 42,327,043 42,724,877 42,864,421
============ ========== ==========
LIABILITIES AND OWNERS' EQUITY
Accounts payable and accrued expenses..... 714,771 850,818 684,692
Other liabilities......................... 105,097 305,593 286,059
------------ ---------- ----------
Total liabilities...................... 819,868 1,156,411 970,751
------------ ---------- ----------
Owners' equity............................ 41,507,175 41,568,466 41,893,670
------------ ---------- ----------
Total liabilities and owners' equity... $ 42,327,043 42,724,877 42,864,421
============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Rooms................. $15,161,297 $15,741,198 $17,681,031 $13,170,361 $13,507,451
Food and beverage..... 6,892,505 6,786,850 7,386,261 5,492,998 5,735,205
Other operating
departments.......... 1,304,212 1,444,318 1,571,775 1,197,597 1,112,977
Other................. 59,361 101,425 46,743 35,629 37,072
----------- ----------- ----------- ----------- -----------
Total revenue....... 23,417,375 24,073,791 26,685,810 19,896,585 20,392,705
----------- ----------- ----------- ----------- -----------
EXPENSES:
Rooms................. 4,754,085 4,876,864 5,133,341 3,826,409 3,996,420
Food and beverage..... 5,534,692 5,334,483 5,768,527 4,240,963 4,455,796
Other operating
departments.......... 941,333 982,654 1,048,591 797,165 811,664
Real estate taxes..... 1,304,638 1,441,397 1,112,317 843,400 1,023,111
Utilities and repairs
and maintenance...... 1,941,602 1,889,277 2,006,902 1,513,308 1,576,525
Administrative........ 2,616,723 2,200,360 2,554,131 1,941,435 1,844,405
Insurance............. 27,200 29,120 23,422 20,229 18,524
Hotel management fees
(note 6)............. 1,543,186 1,743,938 2,088,653 1,499,334 1,514,174
Depreciation (note 3). 2,738,824 1,613,055 1,731,825 1,298,869 --
Interest on mortgage
payable.............. 2,000,000 977,778 -- -- --
Other................. 1,480,849 1,623,279 1,798,616 1,462,155 1,369,414
Advisor fees (note 5). 90,750 115,375 140,000 116,667 116,667
----------- ----------- ----------- ----------- -----------
Total expenses...... 24,973,882 22,827,580 23,406,325 17,559,934 16,726,700
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $(1,556,507) $ 1,246,211 $ 3,279,485 $ 2,336,651 $ 3,666,005
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
STATEMENTS OF OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996AND THE NINE MONTHS ENDED SEPTEMBER
30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Balance at December 31, 1993....................................... $17,564,567
Contributions...................................................... 822,551
Net loss........................................................... (1,556,507)
-----------
Balance at December 31, 1994....................................... 16,830,611
Contributions...................................................... 24,977,777
Distributions...................................................... (1,547,424)
Net income......................................................... 1,246,211
-----------
Balance at December 31, 1995....................................... 41,507,175
Contributions...................................................... 140,000
Distributions...................................................... (3,358,194)
Net income......................................................... 3,279,485
-----------
Balance at December 31, 1996....................................... 41,568,466
Contributions (unaudited).......................................... 116,667
Distributions (unaudited).......................................... (3,457,468)
Net income (unaudited)............................................. 3,666,005
-----------
Balance at September 30, 1997 (unaudited).......................... $41,893,670
===========
</TABLE>
See accompanying notes to financial statements.
F-92
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ------------ ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activ-
ities:
Net income (loss).............. $(1,556,507) $ 1,246,211 $3,279,485 $ 2,336,651 $3,666,005
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation.................. 2,738,824 1,613,055 1,731,825 1,298,869 --
Changes in:
Accounts and other
receivables................. 23,970 64,772 (352,282) (1,824,747) (155,849)
Escrow deposits.............. (236,935) 411,474 426,658 427,890 (264,534)
Other assets................. 141,946 133,695 (14,622) 346,062 334,605
Accounts payable and accrued
expenses.................... (770,292) 412,609 136,047 537,296 (166,126)
Other liabilities............ 22,690 59,724 200,495 58,466 (19,534)
----------- ------------ ---------- ----------- ----------
Net cash provided by
operating activities....... 363,696 3,941,540 5,407,606 3,180,487 3,394,567
----------- ------------ ---------- ----------- ----------
Cash flows used in investing
activities--additions and
improvements to real estate.... (779,832) (1,816,293) (2,601,757) (1,854,682) (904,426)
----------- ------------ ---------- ----------- ----------
Cash flows from financing
activities:
Repayments of mortgage note
payable....................... -- (25,000,000) -- -- --
Contributions.................. 822,551 24,977,777 140,000 116,667 116,667
Distributions.................. -- (1,547,424) (3,358,194) (2,922,148) (3,457,468)
----------- ------------ ---------- ----------- ----------
Net cash (used in) provided
by financing activities.... 822,551 (1,569,647) (3,218,194) (2,805,481) (3,340,801)
----------- ------------ ---------- ----------- ----------
Net (decrease) increase in
cash and cash equivalents.. 406,415 555,600 (412,345) (1,479,676) (850,660)
Cash and cash equivalents--
beginning of period............ $ 801,142 $ 1,207,557 $1,763,157 $ 1,763,157 $1,350,812
----------- ------------ ---------- ----------- ----------
Cash and cash equivalents--end
of period...................... $ 1,207,557 $ 1,763,157 $1,350,812 $ 283,481 $ 500,152
=========== ============ ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-93
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the LaGuardia
Airport Marriott located in East Elmhurst, New York which is owned by the
Pennsylvania Public School Employes' Retirement System Real Estate Portfolio
(Portfolio) and is managed by ERE Yarmouth, formerly known as Equitable Real
Estate Investment Management, Inc. (Advisor) for Pennsylvania Public School
Employes' Retirement System (PSERS). Subsequent to December 31, 1996, PSERS
entered into discussions with affiliates of LaSalle Hotel Properties and its
partners relative to a sale of the LaGuardia Airport Marriott.
These financial statements have been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
Regulation S-X and for inclusion in the Registration Statement on Form S-11 of
LaSalle Hotel Properties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate
Real estate is stated at cost (note 1). Repairs, maintenance, and minor
refurbishments are charged to expense as incurred. Depreciation of building
and equipment is calculated using the straight-line method over the useful
lives of the respective assets.
Property Held for Sale
Property held for sale is expected to be sold in the near term and is
carried at the lower of cost or fair value less costs to sell. Depreciation
and amortization is suspended during the period the property is held for sale.
Cash and Cash Equivalents
For purposes of the statement of cash flows, all highly liquid investments
with a maturity of three months or less when purchased are considered to be
cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Distributions
Distributions are reflected in the financial statements when paid.
Income Taxes
Pennsylvania Public School Employes' Retirement System is exempt from taxes
and, accordingly, no income tax provision is required.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-94
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY HELD FOR SALE
During 1997, the Portfolio began actively marketing the LaGuardia Airport
Marriott for sale. In December 1997, the Portfolio entered into a letter of
intent to sell the LaGuardia Airport Marriott to an affiliate of LaSalle
Partners and its partners for a sales price of $44.5 million. The carrying
amount of the LaGuardia Airport Marriott has been classified as property held
for sale in the accompanying unaudited September 30, 1997 balance sheet.
(4) OTHER ASSETS
Other assets at December 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Prepaid real estate taxes............................... $ 637,123 630,297
Inventory............................................... 373,692 366,924
Prepaid other expenses.................................. 28,322 56,538
---------- ---------
$1,039,137 1,053,759
========== =========
</TABLE>
(5) ADVISOR'S FEES
In accordance with the Service Purchase contract between PSERS and the
Advisor, investment management fees are charged to the Portfolio based on a
fixed annual contract which is then allocated to each of the Portfolio's
properties.
The Advisor's annual investment management fee allocated to the LaGuardia
Airport Marriott was $90,750, $115,375, and $140,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
(6) COMMITMENTS
Hotel Management Agreement
PSERS has retained the Marriott Corporation to manage the hotel operations.
The management agreement provides for a management fee of 3% of total revenues
and an incentive management fee of 20% of operating profits, as defined. These
fees are included in hotel operating expenses. The management fee for the
years ended December 31, 1994, 1995 and 1996 were $700,740, $719,171 and
$799,173, respectively. The incentive management fees for the years ended
December 31, 1994, 1995 and 1996 were $842,446, $1,024,767, and $1,289,480 ,
respectively.
Payments to the Marriott Corporation and certain of its affiliates for
payroll reimbursement and purchases of operating supplies, marketing and
advertising services, insurance, and other miscellaneous services and the
above management fees for the years ended December 31, 1994, 1995 and 1996
were approximately $15,000,000, $15,000,000 and $13,500,000, respectively.
Escrow Deposits
In accordance with the hotel management agreement, 5% of the Hotel's gross
revenues, as defined, is segregated for future capital expenditures to
refurbish the property as well as refurbish and replace the operating
equipment. This cash is segregated in an interest-bearing escrow account to be
used for the specific purposes as defined.
F-95
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the LaGuardia
Airport Marriott located in East Elmhurst, New York which is owned by the
Pennsylvania Public School Employes' Retirement System Real Estate Portfolio
(Portfolio) and is managed by ERE Yarmouth, formerly known as Equitable Real
Estate Investment Management, Inc. (Advisor) for Pennsylvania Public School
Employes' Retirement System (PSERS). Subsequent to December 31, 1996, PSERS
entered into discussions with affiliates of LaSalle Hotel Properties and its
partners relative to a sale of the LaGuardia Airport Marriott.
These financial statements have been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
Regulation S-X and for inclusion in the Registration Statement on Form S-11 of
LaSalle Hotel Properties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate
Real estate is stated at cost (note 1). Repairs, maintenance, and minor
refurbishments are charged to expense as incurred. Depreciation of building
and equipment is calculated using the straight-line method over the useful
lives of the respective assets.
Property Held for Sale
Property held for sale is expected to be sold in the near term and is
carried at the lower of cost or fair value less costs to sell. Depreciation
and amortization is suspended during the period the property is held for sale.
Cash and Cash Equivalents
For purposes of the statement of cash flows, all highly liquid investments
with a maturity of three months or less when purchased are considered to be
cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Distributions
Distributions are reflected in the financial statements when paid.
Income Taxes
Pennsylvania Public School Employes' Retirement System is exempt from taxes
and, accordingly, no income tax provision is required.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-96
<PAGE>
LAGUARDIA AIRPORT MARRIOTT
MANAGED BY ERE YARMOUTH
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY HELD FOR SALE
During 1997, the Portfolio began actively marketing the LaGuardia Airport
Marriott for sale. In December 1997, the Portfolio entered into a letter of
intent to sell the LaGuardia Airport Marriott to an affiliate of LaSalle
Partners and its partners for a sales price of $44.5 million. The carrying
amount of the LaGuardia Airport Marriott has been classified as property held
for sale in the accompanying unaudited September 30, 1997 balance sheet.
(4) OTHER ASSETS
Other assets at December 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Prepaid real estate taxes............................... $ 637,123 630,297
Inventory............................................... 373,692 366,924
Prepaid other expenses.................................. 28,322 56,538
---------- ---------
$1,039,137 1,053,759
========== =========
</TABLE>
(5) ADVISOR'S FEES
In accordance with the Service Purchase contract between PSERS and the
Advisor, investment management fees are charged to the Portfolio based on a
fixed annual contract which is then allocated to each of the Portfolio's
properties.
The Advisor's annual investment management fee allocated to the LaGuardia
Airport Marriott was $90,750, $115,375, and $140,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
(6) COMMITMENTS
Hotel Management Agreement
PSERS has retained the Marriott Corporation to manage the hotel operations.
The management agreement provides for a management fee of 3% of total revenues
and an incentive management fee of 20% of operating profits, as defined. These
fees are included in hotel operating expenses. The management fee for the
years ended December 31, 1994, 1995 and 1996 were $700,740, $719,171 and
$799,173, respectively. The incentive management fees for the years ended
December 31, 1994, 1995 and 1996 were $842,446, $1,024,767, and $1,289,480 ,
respectively.
Payments to the Marriott Corporation and certain of its affiliates for
payroll reimbursement and purchases of operating supplies, marketing and
advertising services, insurance, and other miscellaneous services and the
above management fees for the years ended December 31, 1994, 1995 and 1996
were approximately $15,000,000, $15,000,000 and $13,500,000, respectively.
Escrow Deposits
In accordance with the hotel management agreement, 5% of the Hotel's gross
revenues, as defined, is segregated for future capital expenditures to
refurbish the property as well as refurbish and replace the operating
equipment. This cash is segregated in an interest-bearing escrow account to be
used for the specific purposes as defined.
F-97
<PAGE>
[ARTWORK]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO
BUY OF ANY SECURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
THE COMMON SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SO-
LICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLIC-
ITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Summary Financial Information............................................. 17
Risk Factors.............................................................. 21
The Company............................................................... 33
Business and Growth Strategies............................................ 34
Use of Proceeds........................................................... 39
Distribution Policy....................................................... 40
Capitalization............................................................ 42
Dilution.................................................................. 43
Selected Financial Information............................................ 44
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 47
The Hotel Industry........................................................ 52
The Initial Hotels........................................................ 53
REIT Management........................................................... 74
Structure and Formation of the Company.................................... 81
Policies with Respect to Certain Activities............................... 83
Certain Relationships and Transactions.................................... 86
Partnership Agreement..................................................... 87
Principal Shareholders.................................................... 92
Shares of Beneficial Interest............................................. 93
Certain Provisions of Maryland Law and the Company's Declaration of Trust
and Bylaws............................................................... 97
Shares Eligible for Future Sale........................................... 100
Federal Income Tax Consequences........................................... 102
Underwriting.............................................................. 115
Experts................................................................... 116
Legal Matters............................................................. 117
Additional Information.................................................... 117
Glossary of Selected Terms................................................ G-1
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14,200,000 Shares
[LOGO]
LA SALLE HOTEL
PROPERTIES
Common Shares of Beneficial Interest
--------------
PROSPECTUS
--------------
PRUDENTIAL SECURITIES INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY
SECURITIES LLC
RAYMOND JAMES &
ASSOCIATES, INC.
April , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated except for the
Registration Fee and the NASD Fee.
<TABLE>
<S> <C>
Registration Fee................................................ $ 98,044
NASD Fee........................................................ 30,500
New York Stock Exchange Listing Fee............................. 162,000
Printing and Engraving Expenses................................. 10,000
Legal Fees and Expenses......................................... 1,400,000
Accounting Fees and Expenses.................................... 1,000,000
Blue Sky Fees and Expenses...................................... 15,000
Financial Advisory Fee.......................................... 2,130,000
Environmental and Engineering Expenses.......................... 25,000
Miscellaneous................................................... 629,456
-----------
Total......................................................... $ 5,500,000
===========
</TABLE>
- --------
* To be completed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
On January 15, 1998, the Company was capitalized with the issuance of 100
Common Shares to LaSalle Partners Incorporated for an aggregate purchase price
of $1,000. The issuance of such Common Shares was effected in reliance on an
exemption from registration under Section 4(2) of the Securities Act. See
"Structure and Formation of the Company".
Also in January, 1998, the Operating Partnership was capitalized with the
issuance of a limited partnership interest to Jon E. Bortz, as initial limited
partner, for an aggregate purchase price of $100. The issuance of such limited
partner interest was effected in reliance on an exemption from registration
under Section 4(2) of the Securities Act. See "Structure and Formation of the
Company".
In connection with the closing of the offering, pursuant to the terms of
Contribution Agreements entered into by each of the Contributors, Units and,
in certain circumstances, Common Shares will be issued to the Contributors.
The issuance of the securities to the Contributors will be effected in
reliance on an exemption from registration under Section 4(2) of the
Securities Act. See "Structure and Formation of the Company".
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Company's officers and trustees are and will be indemnified under
Maryland and Delaware law, the Declaration of Trust and Bylaws of the Company
and the Partnership Agreement of the Operating Partnership against certain
liabilities. The Declaration of Trust of the Company requires it to indemnify
its trustees and officers to the fullest extent permitted from time to time
under Maryland law.
The Declaration of Trust of the Company authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former trustee or officer or (b) any individual who,
while a trustee of the
II-1
<PAGE>
Company and at the request of the Company, serves or has served as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her status
as a present or former trustee or officer of the Company. The Bylaws of the
Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former trustee or officer
who is made party to the proceeding by reason of his service in that capacity
or (b) any individual who, while a trustee or officer of the Company and at
the request of the Company, serves or has served another real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer or
partner of such real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity, against any
claim or liability to which he may become subject by reason of such status.
The Declaration of Trust and Bylaws also permit the Company to indemnify and
advance expenses to any person who served as a predecessor of the Company in
any of the capacities described above and to any employee or agent of the
Company or a predecessor of the Company. The Bylaws require the Company to
indemnify a trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In accordance with
the MGCL, the Bylaws of the Company require it, as a condition to advance
expenses, to obtain (a) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws and (b) a written
statement by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that the standard of conduct was
not met.
The Company intends to enter into indemnification agreements with each of
its trustees and officers prior to completion of the Offering. The
indemnification agreements will require, among other things, that the Company
indemnify its trustees and officers to the fullest extent permitted by law and
advance to its trustees and executive officers all related expenses, subject
to reimbursement if it is subsequently determined that indemnification is not
permitted.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not Applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements, all of which are included in the Prospectus:
SUMMARY FINANCIAL INFORMATION
SELECTED FINANCIAL INFORMATION
<TABLE>
<S> <C>
LASALLE HOTEL PROPERTIES
Pro Forma (Unaudited)
Condensed Consolidated Statement of Income for the year ended
December 31, 1997
Notes to Pro Forma Consolidated Condensed Statement of Income
Condensed Consolidated Balance Sheet as of December 31, 1997
Notes to Pro Forma Condensed Consolidated Balance Sheet
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Balance Sheet as of January 15, 1998
Notes to Balance Sheet
AFFILIATED LESSEE
Pro Forma (Unaudited)
Condensed Statement of Operations for the year ended December 31,
1997
Notes to Pro Forma Condensed Statement of Operations
Condensed Balance Sheet as of December 31, 1997
Notes to Pro Forma Condensed Balance Sheet
LE MERIDIEN LESSEE
Pro Forma (Unaudited)
Condensed Statement of Operations for the year ended December 31,
1997
Notes to Pro Forma Condensed Statement of Operations
Condensed Balance Sheet as of December 31, 1997
Notes to Pro Forma Condensed Balance Sheet
INITIAL HOTELS (EXCLUDING THE LAGUARDIA AIRPORT MARRIOTT)
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Combined Balance Sheets as of December 31, 1996 and 1997
Combined Statements of Operations for the years ended December 31,
1995, 1996 and 1997
Combined Statements of Changes in Partners' Capital for the years
ended December 31, 1995, 1996 and 1997
Combined Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997
Notes to Combined Financial Statements
OMAHA MARRIOTT HOTEL
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Statement of Revenues and Expenses for the period from December 30,
1995 to December 19, 1996
Statement of Cash Flows for the period from December 30, 1995 to
December 19, 1996
Notes to Financial Statements
RAHN KEY WEST RESORT, INC.
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Balance Sheet as of December 31, 1996
Statements of Operations for the year ended December 31, 1996 and
the six months ended June 30, 1997 (unaudited)
Statements of Stockholders' Deficit for the year ended December 31,
1996 and the six months ended June 30, 1997 (unaudited)
Statements of Cash Flows for the year ended December 31, 1996 and
the six months ended June 30, 1997 (unaudited)
Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C>
RAHN KEY WEST RESORT, INC.
Historical
Report of Independent Public Accountants--Deloitte & Touche LLP
Balance Sheet as of December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statement of Stockholders' Deficit for the year ended December 31,
1995
Statement of Cash Flows for the year ended December 31, 1995
Notes to Financial Statements
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
LE MERIDIEN DALLAS
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Statements of Revenues and Expenses for the year ended January 31,
1997 and the period from February 1, 1997 to September 4, 1997
Statements of Cash Flows for the year ended January 31, 1997 and
period from February 1, 1997 to September 4, 1997
Notes to Financial Statements
CANAL STREET HOTELS LIMITED PARTNERSHIP (LE MERIDIEN NEW ORLEANS)
Historical
Report of Independent Public Accountants--Arthur Andersen LLP
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996 and
1995
Statements of Changes in Partners' Equity (Deficit) for the years
ended December 31, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996 and
1995
Notes to Financial Statements
MSCC LIMITED PARTNERSHIP (MARRIOTT'S SEAVIEW RESORT)
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Report of Independent Public Accountants--Coopers & Lybrand LLP
Balance Sheets as of December 29, 1995 and January 3, 1997
Statements of Operations for the years ended December 29, 1995 and
January 3, 1997
Statements of Partners' Capital (Deficit) for the years ended
December 29, 1995 and January 3, 1997
Statements of Cash Flows for the years ended December 29, 1995 and
January 3, 1997
Notes to Financial Statements
MARRIOTT'S SEAVIEW RESORT
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Statement of Revenues and Expenses for the period from January 4,
1997 to November 7, 1997
Statement of Cash Flows for the period from January 4, 1997 to
November 7, 1997
Notes to Financial Statements
LAGUARDIA AIRPORT MARRIOTT
Historical
Report of Independent Public Accountants--KPMG Peat Marwick LLP
Balance Sheets as of December 31, 1995 and 1996
Statements of Operations for the years ended December 31, 1994,
1995, and 1996 and the nine months ended September 30, 1996 and
1997 (unaudited)
Statements of Owners' Equity for the years ended December 31, 1994,
1995, and 1996 and the nine months ended September 30, 1997
(unaudited)
Statements of Cash Flows for the years ended December 31, 1994,
1995, and 1996 and the nine months ended September 30, 1996 and
1997 (unaudited)
Notes to Financial Statements
</TABLE>
(b) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement among Prudential Securities
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation,
Legg Mason Wood Walkers, Incorporated, Morgan Stanley & Co.
Incorporated, NationsBanc Montgomery Securities llc and Raymond James
& Associates, Inc. as representatives of the several Underwriters, the
Company and the Operating Partnership*
3.1 Form of Articles of Amendment and Restatement of Declaration of Trust
3.2 Form of Bylaws of the Company
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
4.1 Form of Common Share of Beneficial Interest
4.2 Form of Common Share Purchase Right (LaSalle)
4.3 Form of Common Share Purchase Right (Steinhardt/Cargill)
5.1 Opinion of Brown & Wood llp regarding the validity of the securities
being registered
8.1 Opinion of Brown & Wood llp regarding tax matters*
10.1 Form of Agreement of Limited Partnership of the Operating Partnership
10.2 Form of Articles of Incorporation and Bylaws of the Advisor*
10.3 Form of Registration Rights Agreement relating to Rights to Purchase
Common Shares
10.4 Form of Registration Rights Agreement relating to Units, exchangeable
for Common Shares
10.5 Share Option Plan
10.6 Omnibus Contribution Agreement By and Among LaSalle Hotel Operating
Partnership, L.P. and the Contributors named herein:
10.7 Contribution Agreement (Steinhardt)
10.8 Contribution Agreement (Cargill)
10.9 Contribution Agreement (OLS Visalia)
10.10 Contribution Agreement (OLS Le Montrose)
10.11 Contribution Agreement (Durbin)
10.12 Contribution Agreement (Radisson)
10.13 Form of Advisory Agreement
10.14 Form of Management Agreement
10.15 Form of Lease
10.16 Form of Lease with Affiliated Lessees
10.17 Form of Supplemental Representations, Warranties and Indemnity
Agreement
10.18 Form of Pledge and Security Agreement
21.1 List of Subsidiaries**
23.1 Consent of Brown & Wood llp (included as part of Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick llp
23.3 Consent of Coopers & Lybrand llp
23.4 Consent of Deloitte & Touche llp
23.5 Consent of Arthur Andersen llp
24.1 Power of Attorney (included on the signature page at page II-5
hereof)**
27.1 Financial Data Schedule**
99.1 Consent of Trustee Nominee, Darryl Hartley-Leonard
99.2 Consent of Trustee Nominee, George F. Little, II
99.3 Consent of Trustee Nominee, Donald S. Perkins
99.4 Consent of Trustee Nominee, Shimon Topor
99.5 Consent of Trustee Nominee, Donald A. Washburn
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
ITEM 36. UNDERTAKINGS
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
the information omitted from the form of Prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery of each purchaser.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUND TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN NEW YORK, NEW YORK ON THIS 1ST DAY OF APRIL, 1998.
LaSalle Hotel Properties
By: /s/ Jon E. Bortz
------------------------------------
JON E. BORTZ PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
AS OF THE 5TH DAY OF FEBRUARY, 1998.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Stuart L. Scott* Chairman of the Board April 1, 1998
____________________________________ of Trustees
STUART L. SCOTT
</TABLE>
/s/ Jon E. Bortz President and Chief April 1, 1998
____________________________________ Executive Officer and
JON E. BORTZ Trustee (principal
executive officer,
principal financial
officer and principal
accounting officer)
/s/ Jon E. Bortz
*By:
- ------------------------------------
(JON E. BORTZ, ATTORNEY-IN-FACT)
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
3.1 Form of Articles of Amendment and Restatement of Declaration of Trust
3.2 Form of Bylaws of the Company
4.1 Form of Common Share of Beneficial Interest
4.2 Form of Common Share Purchase Right (LaSalle)
4.3 Form of Common Share Purchase Right (Steinhardt/Cargill)
5.1 Opinion of Brown & Wood llp regarding the validity of the securities being registered
10.1 Form of Agreement of Limited Partnership of the Operating Partnership
10.3 Form of Registration Rights Agreement relating to Rights to Purchase Common Shares
10.4 Form of Registration Rights Agreement relating to Units, exchangeable for Common Shares
10.5 Share Option Plan
10.6 Omnibus Contribution Agreement By and Among LaSalle Hotel Operating Partnership, L.P. and
the Contributors named herein:
10.7 Contribution Agreement (Steinhardt)
10.8 Contribution Agreement (Cargill)
10.9 Contribution Agreement (OLS Visalia)
10.10 Contribution Agreement (OLS Le Montrose)
10.11 Contribution Agreement (Durbin)
10.12 Contribution Agreement (Radisson)
10.13 Form of Advisory Agreement
10.14 Form of Management Agreement
10.15 Form of Lease
10.16 Form of Lease with Affiliated Lessees
10.17 Form of Supplemental Representations, Warranties and Indemnity Agreement
10.18 Form of Pledge and Security Agreement
23.1 Consent of Brown & Wood llp (included as part of Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick llp
23.3 Consent of Coopers & Lybrand llp
23.4 Consent of Deloitte & Touche llp
23.5 Consent of Arthur Andersen llp
99.1 Consent of Trustee Nominee, Darryl Hartley-Leonard
99.2 Consent of Trustee Nominee, George F. Little, II
99.3 Consent of Trustee Nominee, Donald S. Perkins
99.4 Consent of Trustee Nominee, Shimon Topor
99.5 Consent of Trustee Nominee, Donald A. Washburn
</TABLE>
<PAGE>
EXHIBIT 3.1
LASALLE HOTEL PROPERTIES
FORM OF ARTICLES OF AMENDMENT AND RESTATEMENT OF
DECLARATION OF TRUST
FIRST: LaSalle Hotel Properties, a Maryland real estate investment trust
(the "Trust") under Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland ("Title 8"), desires to amend and restate its
Declaration of Trust as currently in effect (as so amended and restated, and as
the same may be amended hereafter, the "Declaration of Trust").
SECOND: The following provisions are all the provisions of this Declaration
of Trust currently in effect and as hereinafter amended:
ARTICLE I
FORMATION
The Trust is a real estate investment trust within the meaning of Title 8.
The Trust shall not be deemed to be a general partnership, limited partnership,
joint venture, joint stock company or, except as provided in Section 13.4
hereof, a corporation (but nothing herein shall preclude the Trust from being
treated for tax purposes as an association under the Internal Revenue Code of
1986, as amended (the "Code")).
ARTICLE II
NAME
The name of the Trust is: LaSalle Hotel Properties.
So far as may be practicable, the business of the Trust shall be conducted
and transacted under that name, which name (and the word "Trust" wherever used
in this Declaration of Trust, except where the context otherwise requires) shall
refer to the Trustees (as hereinafter defined) collectively but not individually
or personally and shall not refer to the Shareholders (as hereinafter defined)
or to any officers, employees or agents of the Trust or of such Trustees.
Under circumstances in which the Board of Trustees of the Trust (the "Board
of Trustees" or "Board") determines that the use of the name of the Trust is not
practicable, the Trust may use any other designation or name for the Trust.
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ARTICLE III
PURPOSES AND POWERS
Section 3.1 Purposes. The purposes for which the Trust is formed are to
invest in and to acquire, hold, finance, manage, administer, control and dispose
of property, including, without limitation or obligation, engaging in business
as a real estate investment trust under the Code.
Section 3.2 Powers. The Trust shall have all of the powers granted to real
estate investment trusts pursuant to Title 8 or any successor statute and shall
have all other and further powers set forth in this Declaration of Trust which
are not inconsistent with law and are appropriate to promote and attain the
purposes set forth in this Declaration of Trust.
Section 3.3 Investment Policy. The fundamental investment policy of the
Trust is to make investments in such a manner as to comply with the provisions
of the Code applicable to real estate investment trusts and with the
requirements of Title 8, with respect to the composition of the Trust's
investments and the derivation of its income. Subject to Section 5.2(u) hereof,
the Trustees will use their best efforts to carry out this fundamental
investment policy and to conduct the affairs of the Trust in such a manner as to
continue to qualify the Trust for the tax treatment provided for real estate
investment trusts in the Code; provided, however, no Trustee, officer, employee
or agent of the Trust shall be liable for any act or omission resulting in the
loss of tax benefits under the Code, except to the extent provided in Section
9.2 hereof. The Trustees may change from time to time by resolution or in the
bylaws of the Trust (the "Bylaws"), such investment policies as they determine
to be in the best interests of the Trust, including prohibitions or restrictions
upon certain types of investments.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of Maryland is The
Corporation Trust Incorporated, 300 East Lombard Street, Suite 1400, Baltimore,
Maryland 21202. Said resident agent is a Maryland corporation. The Trust may
have such offices or places of business within or outside the State of Maryland
as the Board of Trustees may from time to time determine.
2
<PAGE>
ARTICLE V
BOARD OF TRUSTEES
Section 5.1 Powers. Subject to any express limitations contained in this
Declaration of Trust or in the Bylaws, (a) the business and affairs of the Trust
shall be managed under the direction of the Board of Trustees and (b) the Board
shall have full, exclusive and absolute power, control and authority over any
and all property of the Trust. The Board may take any action as in its sole
judgment and discretion is necessary or appropriate to conduct the business and
affairs of the Trust. This Declaration of Trust shall be construed with a
presumption in favor of the grant of power and authority to the Board. Any
construction of this Declaration of Trust or determination made in good faith by
the Board concerning its powers and authority hereunder shall be conclusive. The
enumeration and definition of particular powers of the Trustees included in this
Declaration of Trust or in the Bylaws shall in no way be limited or restricted
by reference to or inference from the terms of this or any other provision of
this Declaration of Trust or the Bylaws or construed or deemed by inference or
otherwise in any manner to exclude or limit the powers conferred upon the Board
or the Trustees under the general laws of the State of Maryland as now or
hereafter in force or any other applicable laws.
Section 5.2 Specific Powers and Authority. Subject only to the express
limitations herein, and in addition to all other powers and authority conferred
by this Declaration of Trust or by law, the Trustees, without any vote, action
or consent by the Shareholders, shall have and may exercise, at any time or
times, in the name of the Trust or on its behalf the following powers and
authorities:
(a) Investments. Subject to Section 9.4 hereof, to invest in, purchase or
otherwise acquire and to hold real, personal or mixed, tangible or intangible,
property of any kind wherever located, or rights or interests therein or in
connection therewith, all without regard to whether such property, interests or
rights are authorized by law for the investment of funds held by trustees or
other fiduciaries, or whether obligations the Trust acquires have a term greater
or lesser than the term of office of the Trustees or the possible termination of
the Trust, for such consideration as the Trustees may deem proper (including
cash, property of any kind or securities of the Trust); provided, however, that
the Trustees shall take such actions as they deem necessary and desirable to
comply with any requirements of Title 8 relating to the types of assets held by
the Trust.
(b) Sale, Disposition and Use of Property. Subject to Sections 3.3 and 9.4
and Article XI hereof: (i) to sell, rent, lease, hire, exchange, release,
partition, assign, mortgage,
3
<PAGE>
grant security interests in, encumber, negotiate, dedicate, grant easements in
and options with respect to, convey, transfer (including transfers to entities
wholly or partially owned by the Trust or the Trustees) or otherwise dispose of
any or all of the property of the Trust by deeds (including deeds in lieu of
foreclosure with or without consideration), trust deeds, assignments, bills of
sale, transfers, leases, mortgages, financing statements, security agreements
and other instruments for any of such purposes executed and delivered for and on
behalf of the Trust or the Trustees by one or more of the Trustees or by a duly
authorized officer, employee, agent or nominee of the Trust, on such terms as
they deem appropriate; (ii) to give consents and make contracts relating to the
property of the Trust and its use or other property or matters; (iii) to
develop, improve, manage, use, alter or otherwise deal with the property of the
Trust; and (iv) to rent, lease or hire from others property of any kind;
provided, however, that the Trust may not use or apply land for any purposes not
permitted by applicable law.
(c) Financings. To borrow or in any other manner raise money for the
purposes and on the terms they determine, and to evidence the same by issuance
of securities of the Trust, which may have such provisions as the Trustees
determine; to reacquire such securities of the Trust; to enter into other
contracts or obligations on behalf of the Trust; to guarantee, indemnify or act
as surety with respect to payment or performance of obligations of any person;
to mortgage, pledge, assign, grant security interests in or otherwise encumber
the property of the Trust to secure any such securities of the Trust, contracts
or obligations (including guarantees, indemnifications and suretyships); and to
renew, modify, release, compromise, extend, consolidate or cancel, in whole or
in part, any obligation to or of the Trust or participate in any reorganization
of obligors to the Trust.
(d) Loans. Subject to the provisions of Section 9.4 hereof, to lend money
or other property of the Trust on such terms, for such purposes and to such
persons as they may determine.
(e) Issuance of Securities. Subject to the provisions of Article VI
hereof: (i) to create and authorize and direct the issuance (on either a pro
rata or a non-pro rata basis) by the Trust, in Shares (as hereinafter defined),
units or amounts of one or more types, series or classes, of securities of the
Trust, which may have such voting rights, dividend or interest rates,
preferences, subordinations, conversion or redemption prices or rights, maturity
dates, distribution, exchange, or liquidation rights or other rights as the
Trustees may determine, without vote of or other action by the Shareholders, to
such persons for such consideration, at such time or times and in such manner
and
4
<PAGE>
on such terms as the Trustees determine; (ii) to list or to designate for
listing or quotation any of the securities of the Trust on any national
securities exchange or automated inter-dealer quotation system; and (iii) to
purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any
securities of the Trust.
(f) Expenses and Taxes. To pay any charges, expenses or liabilities
necessary or desirable, in the sole discretion of the Trustees, for carrying out
the purposes of this Declaration of Trust and conducting the business of the
Trust, including compensation or fees to Trustees, officers, employees and
agents of the Trust, and to persons contracting with the Trust, and any taxes,
levies, charges and assessments of any kind imposed upon or chargeable against
the Trust, the property of the Trust or the Trustees in connection therewith;
and to prepare and file any tax returns, reports or other documents and take any
other appropriate action relating to the payment of any such charges, expenses
or liabilities.
(g) Collection and Enforcement. To collect, sue for and receive money or
other property due to the Trust; to consent to extensions of the time for
payment, or to the renewal, of any securities or obligations; to engage or to
intervene in, prosecute, defend, compound, enforce, compromise, release, abandon
or adjust any actions, suits, proceedings, disputes, claims, demands, security
interests or things relating to the Trust, the property of the Trust or the
Trust's affairs; to exercise any rights and enter into any agreements and take
any other action necessary or desirable in connection with the foregoing.
(h) Deposits. To deposit funds or securities constituting part of the
property of the Trust in banks, trust companies, savings and loan associations,
financial institutions and other depositories, whether or not such deposits will
draw interest, subject to withdrawal on such terms and in such manner as the
Trustees determine.
(i) Allocation; Accounts. To determine whether moneys, profits or other
assets of the Trust shall be charged or credited to, or allocated between,
income and capital, including whether or not to amortize any premium or discount
and to determine in what manner any expenses or disbursements are to be borne as
between income and capital (regardless of how such items would normally or
otherwise be charged to or allocated between income and capital without such
determination); to treat any dividend or other distribution on any investment
as, or apportion it between, income and capital; in their discretion to provide
reserves for depreciation, amortization, obsolescence or other purposes in
respect of any property of the Trust in such amounts and by such methods as they
determine; to determine what constitutes net
5
<PAGE>
earnings, profits or surplus; to determine the method or form in which the
accounts and records of the Trust shall be maintained; and to allocate to the
Shareholders' equity account less than all of the consideration paid for Shares
and to allocate the balance to paid-in capital or capital surplus.
(j) Valuation of Property. To determine the value of all or any part of
the property of the Trust and of any services, securities, property or other
consideration to be furnished to or acquired by the Trust, and to revalue all or
any part of the property of the Trust, all in accordance with such appraisals or
other information as are reasonable, in their sole judgment.
(k) Ownership and Voting Powers. To exercise all of the rights, powers,
options and privileges pertaining to the ownership of any mortgages, securities,
real estate and other property of the Trust to the same extent that an
individual owner might, including, without limitation, to vote or give any
consent, request or notice or waive any notice, either in person or by proxy or
power of attorney, which proxies and powers of attorney may be for any general
or special meetings or action, and may include the exercise of discretionary
powers.
(l) Officers; Delegation of Powers. To elect, appoint or employ such
officers for the Trust and such committees of the Board of Trustees with such
powers and duties as the Trustees may determine or the Bylaws provide; to
engage, employ or contract with and pay compensation to any person (including,
subject to Section 9.4 hereof, any Trustee and any person who is an affiliate of
any Trustee) as agent, representative, advisor, member of an advisory board,
employee or independent contractor (including advisers, consultants, transfer
agents, registrars, underwriters, accountants, attorneys-at-law, real estate
agents, property and other managers, appraisers, brokers, architects, engineers,
construction managers, general contractors or otherwise) in one or more
capacities, to perform such services on such terms as the Trustees may
determine; and to delegate to one or more Trustees, officers or other persons
engaged or employed as aforesaid, or to committees of Trustees, the performance
of acts or other things (including granting of consents), the making of
decisions and the execution of such deeds, contracts or other instruments, in
the name of the Trust or the Trustees, or as their attorneys or otherwise, as
the Trustees may determine.
(m) Associations. Subject to Section 9.4 hereof, to cause the Trust to
enter into joint ventures, general or limited partnerships, participation or
agency arrangements or any other lawful combinations, relationships or
associations of any kind.
(n) Reorganization; Merger, Consolidation or Sale of Trust Property.
Subject to Article XI hereof: (i) to cause to be organized or assist in
organizing any person under the laws of
6
<PAGE>
any jurisdiction to acquire all or any part of the property of the Trust, carry
on any business in which the Trust shall have an interest or otherwise exercise
the powers the Trustees deem necessary, useful or desirable to carry on the
business of the Trust or to carry out the provisions of this Declaration of
Trust; (ii) to merge or consolidate the Trust with any person; (iii) to sell,
rent, lease, hire, convey, negotiate, assign, exchange or transfer all or any
part of the property of the Trust to or with any person in exchange for
securities of such person or otherwise; and (iv) to lend money to, subscribe for
and purchase the securities of, and enter into any contracts with, any person in
which the Trust holds, or is about to acquire, securities or any other
interests.
(o) Insurance. To purchase and pay for out of property of the Trust
insurance policies insuring the Trust and the property of the Trust against any
and all risks, and insuring the Shareholders, Trustees, officers, employees and
agents of the Trust individually against all claims and liabilities of every
nature arising by reason of holding or having held any such status, office or
position or by reason of any action alleged to have been taken or omitted
(including those alleged to constitute misconduct, gross negligence, reckless
disregard of duty or bad faith) by any such person in such capacity, whether or
not the Trust would have the power to indemnify such person against such claim
or liability.
(p) Executive Compensation, Pension and Other Plans. To adopt and
implement executive compensation, pension, profit sharing, share option, share
bonus, share purchase, share appreciation rights, restricted share, savings,
thrift, retirement, incentive or benefit plans, trusts or provisions, applicable
to any or all Trustees, officers, employees or agents of the Trust, or to other
persons who have benefited the Trust, all on such terms and for such purposes as
the Trustees may determine.
(q) Distributions. To declare and pay dividends or other distributions to
Shareholders, subject to the provisions of Section 6.5 hereof.
(r) Indemnification. In addition to the indemnification provided for in
Section 9.3 hereof, to indemnify any person, including any independent
contractor, with whom the Trust has dealings.
(s) Charitable Contributions. To make donations for the public welfare or
for community, charitable, religious, educational, scientific, civic or similar
purposes, regardless of any direct benefit to the Trust.
7
<PAGE>
(t) Advisory Services. To engage or terminate any advisor to perform or
assist in the performance of any of the activities of the Trust.
(u) Discontinue Operations; Bankruptcy. To discontinue the operations of
the Trust (subject to Section 12.2 hereof); to petition or apply for relief
under any provision of federal or state bankruptcy, insolvency or reorganization
laws or similar laws for the relief of debtors; to permit any property of the
Trust to be foreclosed upon without raising any legal or equitable defenses that
may be available to the Trust or the Trustees or otherwise defending or
responding to such foreclosure; to confess judgment against the Trust; or to
take such other action with respect to indebtedness or other obligations of the
Trustees, in such capacity, the property of the Trust or the Trust as the
Trustees in their discretion may determine.
(v) Termination of Status. To terminate the status of the Trust as a real
estate investment trust under the Code; provided, however, that the Board of
Trustees shall take no action to terminate the Trust's status as a real estate
investment trust under the Code until such time as (i) the Board of Trustees
adopts a resolution recommending that the Trust terminate its status as a real
estate investment trust under the Code, (ii) the Board of Trustees presents the
resolution at an annual or special meeting of the Shareholders and (iii) such
resolution is approved by the holders of a majority of the issued and
outstanding Common Shares (as hereinafter defined).
(w) Fiscal Year. Subject to the Code, to adopt, and from time to time
change, a fiscal year for the Trust.
(x) Seal. To adopt and use a seal, but the use of a seal shall not be
required for the execution of instruments or obligations of the Trust.
(y) Bylaws. To adopt, implement and from time to time alter, amend or
repeal Bylaws relating to the business and organization of the Trust which are
not inconsistent with the provisions of this Declaration of Trust.
(z) Accounts and Books. To determine from time to time whether and to what
extent, and at what times and places, and under what conditions and regulations,
the accounts and books of the Trust, or any of them, shall be open to the
inspection of Shareholders.
(aa) Voting Trust. To participate in, and accept securities issued under
or subject to, any voting trust.
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<PAGE>
(ab) Proxies. To solicit proxies of the Shareholders at the expense of the
Trust.
(bb) Ownership Limits. To determine that it is no longer in the best
interests of the Trust to attempt to, or continue to, qualify as a real estate
investment trust under the Code or that compliance with any restriction or
limitations on ownership and transfers of Shares set forth in Article VII hereof
is no longer required for the Trust to qualify as a real estate investment trust
under the Code.
(cc) Further Powers. To do all other acts and things and execute and
deliver all instruments incident to the foregoing powers, and to exercise all
powers which they deem necessary, useful or desirable to carry on the business
of the Trust or to carry out the provisions of this Declaration of Trust, even
if such powers are not specifically provided hereby.
Section 5.3 Determination of Best Interest of Trust. In determining what
is in the best interest of the Trust, a Trustee shall consider the interests of
the Shareholders of the Trust and, in his sole and absolute discretion, may
consider (a) the interests of the Trust's employees, suppliers, creditors and
customers, (b) the economy of the nation, (c) community and societal interests
and (d) the long-term as well as short-term interests of the Trust and its
Shareholders, including the possibility that these interests may be best served
by the continued independence of the Trust.
Section 5.4 Number and Classification. The number of Trustees (the
"Trustees") shall initially be two (2), which number (i) shall automatically be
increased to seven (7) effective immediately following the closing of the
Trust's initial public offering and (ii) may be thereafter increased or
decreased from time to time in accordance with the Bylaws of the Trust;
provided, however, that, effective immediately following the closing of the
Trust's initial public offering, the total number of Trustees shall not be fewer
than three (3) and not more than nine (9). Notwithstanding the foregoing, if for
any reason any or all of the Trustees cease to be Trustees, such event shall not
terminate the Trust or affect this Declaration of Trust or the powers of any
remaining Trustees. The names and addresses of the initial two (2) Trustees are:
Name Address
Stuart L. Scott 200 East Randolph Drive
Chicago, Illinois 60601
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<PAGE>
Jon E. Bortz 220 East 42nd Street
New York, New York 10017
Effective immediately following the closing of the Trust's initial public
offering, the number of Trustees shall automatically be increased to seven (7),
whereupon the Trustees, including the initial Trustees, shall be divided into
three classes as nearly equal in number as possible and initially consisting of
two, two and three members, respectively, with the term of office of one class
expiring each year. One class of Trustees, consisting initially of two member,
shall hold office initially for a term expiring at the annual meeting of
Shareholders in 1999; another class, consisting initially of two members, shall
hold office initially for a term expiring at the annual meeting of Shareholders
in 2000; and the third class, consisting initially of three members, shall hold
office initially for a term expiring at the annual meeting of Shareholders in
2001. The Board of Trustees, by resolution, shall designate the Trustees who
will serve in each class.
The Trustees may fill any vacancy, whether resulting from an increase in
the number of Trustees or otherwise, on the Board of Trustees. Beginning with
the annual meeting of Shareholders in 1999 and at each succeeding annual meeting
of Shareholders, the successor or successors to the class of Trustees whose term
expires at such meeting shall be elected to hold office for a term expiring at
the third succeeding annual meeting of Shareholders. Trustees shall hold office
until their successors are duly elected and qualify. Election of Trustees by
Shareholders shall require the vote and be in accordance with the procedures set
forth in the Bylaws.
It shall not be necessary to list in this Declaration of Trust the names
and addresses of any Trustees hereafter elected.
Section 5.5 Resignation, Removal or Death. Any Trustee may resign by
written notice to the Board, effective upon execution and delivery to the Trust
of such written notice or upon any future date specified in the notice. Subject
to the rights of holders of one or more classes or series of Preferred Shares,
as hereinafter defined, to elect one or more Trustees, a Trustee may be removed
at any time, only with cause, at a meeting of the Shareholders, by the
affirmative vote of the holders of a majority of the Shares then outstanding and
entitled to vote for the election of Trustees. Upon the resignation or removal
of any Trustee, or his otherwise ceasing to be a Trustee, he shall automatically
cease to have any right, title or interest in and to the property of the Trust
and shall execute and deliver such documents as the remaining Trustees require
for the conveyance of any property of the Trust held in his name, and shall
account to
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the remaining Trustees as they require for all property which he holds as
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall perform the acts described in the foregoing sentence.
Section 5.6 Title to Property of the Trust. Legal title to all property of
the Trust shall be vested in the Trustees, but they may cause legal title to any
property of the Trust to be held by or in the name of any Trustee, or the Trust,
or any other person as nominee. The right, title and interest of the Trustees in
and to the property of the Trust shall automatically vest in successor and
additional Trustees upon their qualification and acceptance of election or
appointment as Trustees, and they shall thereupon have all the rights and
obligations of Trustees, whether or not conveyancing documents have been
executed and delivered pursuant to Section 5.5 hereof or otherwise. Written
evidence of the qualification and acceptance of election or appointment of
successor and additional Trustees may be filed with the records of the Trust and
in such other offices, agencies or places as the Trustees may deem necessary or
desirable.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 Authorized Shares. The Trust shall have the authority to issue
a total of 120 million shares of beneficial interest ("Shares"), of which 100
million shall be common shares of beneficial interest, $.01 par value per share
("Common Shares"), and 20 million shall be preferred shares of beneficial
interest, $.01 par value per share ("Preferred Shares"). The Board of Trustees,
with the approval of the holders of record of outstanding Shares (the
"Shareholders") by a majority of the votes entitled to be cast at a meeting of
Shareholders duly called and at which a quorum is present, may amend this
Declaration of Trust from time to time to increase or decrease the aggregate
number of Shares or the number of Shares of any class that the Trust has
authority to issue.
Section 6.2 Common Shares. Subject to the provisions of Article VII, each
Common Share shall entitle the holder thereof to one vote on each matter upon
which holders of Common Shares are entitled to vote, and all Common Shares shall
have equal dividend, distribution, liquidation and other rights, and shall have
no preference, cumulative, preemptive, appraisal, conversion or exchange rights.
Section 6.3 Preferred Shares. The Board of Trustees may classify any
unissued Preferred Shares, and may reclassify any previously classified but
unissued Preferred Shares of any series from time to time, in one or more series
of Preferred
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Shares. Prior to issuance of classified or reclassified Preferred Shares of any
series, the Board of Trustees by resolution shall (a) designate that series to
distinguish it from all other series of Preferred Shares; (b) specify the number
of Preferred Shares to be included in the series; (c) set, subject to the
provisions of Article VII and subject to the express terms of any series of
Preferred Shares outstanding at the time, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption for each
series; and (d) cause the Trust to file Articles Supplementary with the State
Department of Assessments and Taxation of Maryland (the "SDAT"). Any of the
terms of any series of Preferred Shares set pursuant to clause (c) of this
Section 6.3 may be made dependent upon facts ascertainable outside this
Declaration of Trust (including, without limitation, the occurrence of any event
or a determination or action by the Trust or any other person or body) and may
vary among holders thereof, provided that the manner in which such facts or
variations shall operate upon the terms of such series of Shares is clearly and
expressly set forth in the Articles Supplementary filed with the SDAT.
Section 6.4 Authorization by Board of Share Issuance. The Board of
Trustees may authorize the issuance from time to time of Shares of any class or
series, whether now or hereafter authorized, or securities or rights convertible
into Shares of any class or series, whether now or hereafter authorized, for
such consideration (whether in cash, property, past or future services,
obligation for future payment or otherwise) as the Board of Trustees may deem
advisable (or without consideration in the case of a Share split or Share
dividend), subject to such restrictions or limitations, if any, as may be set
forth in this Declaration of Trust or the Bylaws.
Section 6.5 Dividends and Distributions. The Board of Trustees may from
time to time authorize, declare and pay to Shareholders such dividends or
distributions, in cash, property or other assets of the Trust or in securities
of the Trust or from any other source as the Board of Trustees in its discretion
shall determine. The Board of Trustees shall endeavor to declare and pay such
dividends and distributions as shall be necessary for the Trust to qualify as a
real estate investment trust under the Code; provided, however, that
Shareholders shall have no right to any dividend or distribution unless and
until authorized and declared by the Board. The exercise of the powers and
rights of the Board of Trustees pursuant to this Section 6.5 shall be subject to
the provisions of any class or series of Shares at the time outstanding. The
receipt by any person in whose name any Shares are registered on the records of
the Trust or by his duly authorized agent shall be a sufficient discharge for
all dividends or distributions payable or deliverable in respect of such Shares
and from all liability to see to the application
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thereof. Unless the status of the Trust as a real estate investment trust under
the Code has been terminated pursuant to Section 5.2(u) hereof, no determination
shall be made by the Board of Trustees nor shall any transaction be entered into
by the Trust which would cause any Shares or other beneficial interest in the
Trust not to constitute "transferable shares" or "transferable certificates of
beneficial interest" under Section 856(a)(2) of the Code or which would cause
any distribution to constitute a preferential dividend as described in Section
562(c) of the Code.
Section 6.6 General Nature of Shares. All Shares shall be personal
property entitling the Shareholders only to those rights provided in this
Declaration of Trust. The Shareholders shall have no interest in the property of
the Trust and shall have no right to compel any partition, division, dividend or
distribution of the Trust or of the property of the Trust. The death of a
Shareholder shall not terminate the Trust or give his legal representative any
rights against other Shareholders, the Trustees or the property of the Trust,
except the right, exercised in accordance with applicable provisions of the
Bylaws, to receive a new certificate for Shares in exchange for the certificate
held by the deceased Shareholder. The Trust is entitled to treat as Shareholders
only those persons in whose names Shares are registered as holders of Shares on
the beneficial interest ledger of the Trust.
Section 6.7 Fractional Shares. The Trust may, without the consent or
approval of any Shareholders, issue fractional Shares, eliminate a fraction of a
Share by rounding up or down to a full Share, arrange for the disposition of a
fraction of a Share by the person entitled to it, or pay cash for the fair value
of a fraction of a Share.
Section 6.8 Declaration and Bylaws. All Shareholders are subject to the
provisions of this Declaration of Trust and the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII, the
following terms shall have the following meanings:
Beneficial Ownership. The term "Beneficial Ownership" shall mean ownership
of Shares by a Person, whether the interest in Shares is held directly or
indirectly (including by a nominee), and shall include interests that would be
treated as owned through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms
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"Beneficial Owner," "Beneficially Own," "Beneficially Owns," "Beneficially
Owning" and "Beneficially Owned" shall have the correlative meanings.
Benefit Plan Investor. The term "Benefit Plan Investor" shall have the
meaning provided in 29 C.F.R. ss. 2510.3-101(f)(2), or any successor regulation
thereto.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York, New York are authorized or required by law, regulation
or executive order to close.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean one
or more beneficiaries of the Charitable Trust as determined pursuant to Section
7.3.7, provided that each such organization must be described in Sections
501(c)(3), 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and
170(c)(2) of the Code.
Charitable Trust. The term "Charitable Trust" shall mean any trust
provided for in Section 7.2.1(b)(i) and Section 7.3.1.
Charitable Trustee. The term "Charitable Trustee" shall mean the Person
unaffiliated with the Trust and a Prohibited Owner, that is appointed by the
Trust to serve as trustee of the Charitable Trust.
Closing Price. The "Closing Price" on any date shall mean the last sale
price for such Shares, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, for such
Shares, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
NYSE or, if such Shares are not listed or admitted to trading on the NYSE, as
reported on the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which such
Shares are listed or admitted to trading or, if such Shares are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASDAQ Stock Market or, if such
system is no longer in use, the principal other automated inter-dealer quotation
system that may then be in use or, if such Shares are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such Shares selected by the Board
of Trustees or, in the event that no trading price
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is available for such Shares, the fair market value of Shares, as determined in
good faith by the Board of Trustees.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Shares by a Person, whether the interest in Shares is held directly
or indirectly (including by a nominee), and shall include interests that would
be treated as owned through the application of Section 318(a) of the Code, as
modified by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Own," "Constructively Owns," "Constructively Owning" and
"Constructively Owned" shall have the correlative meanings.
Effective Date. The term "Effective Date" shall mean the date of the
closing of the initial public offering of Common Shares.
ERISA Investor. The term "ERISA Investor" shall mean any holder of Shares
that is (i) an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) a plan as
defined in Section 4975(e) of the Code (any such employee benefit plan or plan
described in clause (i) or this clause (ii) being referred to herein as a
"Plan"), (iii) a trust which was established pursuant to a Plan, or a nominee
for such trust or Plan, or (iv) an entity whose underlying assets include assets
of a Plan by reason of such Plan's investment in such entity.
Initial Date. The term "Initial Date" shall mean January 15, 1998.
Initial Shareholder. The term Initial Shareholder shall mean .
Market Price. The term "Market Price" on any date shall mean, with respect
to any class or series of outstanding Shares, the Closing Price for such Shares
on such date.
NYSE. The term "NYSE" shall mean the New York Stock Exchange, Inc.
Ownership Limit. The term "Ownership Limit" shall mean (i) with respect to
the Common Shares, 9.8% (in value or number of Shares, whichever is more
restrictive) of the outstanding Common Shares of the Trust; and (ii) with
respect to any class or series of Preferred Shares, 9.8% (in value or number of
Shares, whichever is more restrictive) of the outstanding Shares of such class
or series of Preferred Shares of the Trust.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a) or
501(c)(17) of the Code), a
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portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect to
any purported Transfer, any Person who, but for the provisions of Section 7.2.1,
would Beneficially Own or Constructively Own Shares, and if appropriate in the
context, shall also mean any Person who would have been the record owner of
Shares that the Prohibited Owner would have so owned.
Publicly Offered Securities. The term "Publicly Offered Securities" shall
have the meaning provided in 29 C.F.R. ss. 2510.3-101(b)(2), or any successor
regulation thereto.
REIT. The term "REIT" shall mean a real estate investment trust within the
meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Board of Trustees
determines that it is no longer in the best interests of the Trust to attempt
to, or continue to, qualify as a REIT or that compliance with the restrictions
and limitations on Beneficial Ownership, Constructive Ownership and Transfers of
Shares set forth herein is no longer required in order for the Trust to qualify
as a REIT.
Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event that
causes any Person to acquire Beneficial Ownership or Constructive Ownership, or
any agreement to take any such actions or cause any such events, of Shares or
the right to vote or receive dividends on Shares, including (a) a change in the
capital structure of the Trust, (b) a change in the relationship between two or
more Persons which causes a change in ownership of Shares by application of
Section 544 of the Code, as modified by Section 856(h), (c) the granting or
exercise of any option or warrant (or any disposition of any option or warrant),
pledge, security interest, or similar right to acquire Shares, (d) any
disposition of any securities or rights convertible into or exchangeable for
Shares or any interest in Shares or any exercise of any such conversion or
exchange right and (e) Transfers of interests in other entities that result in
changes in Beneficial Ownership or Constructive Ownership of Shares; in each
case, whether voluntary or involuntary, whether owned of record, Constructively
Owned or Beneficially Owned and whether by operation of law or otherwise. (For
purposes of this Article VII, the right of a limited partner in LaSalle Hotel
Operating
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Partnership, L.P., a Delaware limited partnership, to require the partnership to
redeem such limited partner's units of partnership interest pursuant to Section
8.6 of the Agreement of Limited Partnership of LaSalle Hotel Operating
Partnership, L.P. shall not be considered to be an option or similar right to
acquire Shares of the Trust.) The terms "Transferring" and "Transferred" shall
have the correlative meanings.
Section 7.2 Restrictions on Ownership and Transfer of Shares.
Section 7.2.1 Ownership Limitations. From the Initial Date and prior to
the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than the Initial Shareholder, shall Beneficially
Own or Constructively Own Shares in excess of the Ownership Limit and (2) the
Initial Shareholder shall not Beneficially Own or Constructively Own Shares in
excess of the Ownership Limit on any date after the Effective Date.
(ii) No Person shall Beneficially Own or Constructively Own Shares to the
extent that (1) such Beneficial Ownership of Shares would result in the Trust
being "closely held" within the meaning of Section 856(h) of the Code (without
regard to whether the ownership interest is held during the last half of a
taxable year) or (2) such Beneficial Ownership or Constructive Ownership of
Shares would result in the Trust otherwise failing to qualify as a REIT
(including, but not limited to, ownership that would result in the Trust
actually owning or Constructively Owning an interest in a tenant that is
described in Section 856(d)(2)(B) of the Code if the income derived by the Trust
from such tenant would cause the Trust to fail to satisfy any of the gross
income requirements of Section 856(c) of the Code).
(iii) No Person shall Transfer any Shares if, as a result of the Transfer,
the Shares would be Beneficially Owned by less than 100 Persons (determined
without reference to the rules of attribution under Section 544 of the Code).
Notwithstanding any other provisions contained herein (but subject to Section
7.5), any Transfer of Shares (whether or not such Transfer is the result of a
transaction entered into through the facilities of the NYSE or any other
national securities exchange or automated inter-dealer quotation system) that,
if effective, would result in Shares being Beneficially Owned by less than 100
Persons (determined under the principles of Section 856(a)(5) of the Code) shall
be void ab initio, and the intended transferee shall acquire no rights in such
Shares.
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(b) Transfer in Trust. If any Transfer of Shares (whether or not such
Transfer is the result of a transaction entered into through the facilities of
the NYSE or any other national securities exchange or automated inter-dealer
quotation system) occurs which, if effective, would result in any Person
Beneficially Owning or Constructively Owning Shares in violation of Section
7.2.1(a)(i) or (ii), then:
(i) that number of Shares the Beneficial Ownership or Constructive
Ownership of which otherwise would cause such Person to violate Section
7.2.1(a)(i) or (ii) (rounded to the nearest whole share) shall be automatically
transferred to a Charitable Trust for the benefit of a Charitable Beneficiary,
as described in Section 7.3, effective as of the close of business on the
Business Day prior to the date of such Transfer, and such Person shall acquire
no rights in such Shares; or
(ii) subject to Section 7.5, if the transfer to the Charitable Trust
described in clause (i) of this sentence would not be effective for any reason
to prevent the violation of Section 7.2.1(a)(i) or (ii), then the Transfer of
that number of Shares that otherwise would cause any Person to violate Section
7.2.1(a)(i) or (ii) shall be void ab initio, and the intended transferee shall
acquire no rights in such Shares.
Section 7.2.2 Remedies for Breach. Subject to Section 7.5, if the Board of
Trustees or any duly authorized committee thereof shall at any time determine in
good faith that a Transfer or other event has taken place that results in a
violation of Section 7.2.1 or that a Person intends to acquire or has attempted
to acquire Beneficial Ownership or Constructive Ownership of any Shares in
violation of Section 7.2.1 (whether or not such violation is intended), the
Board of Trustees or a committee thereof shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or other
event, including, without limitation, causing the Trust to redeem Shares,
refusing to give effect to such Transfer on the books of the Trust or
instituting proceedings to enjoin such Transfer or other event; provided,
however, that any Transfer or attempted Transfer or other event in violation of
Section 7.2.1 shall automatically result in the transfer to the Charitable Trust
described above, and, where applicable, such Transfer (or other event) shall be
void ab initio as provided above irrespective of any action (or non-action) by
the Board of Trustees or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person who acquires or
attempts or intends to acquire Beneficial Ownership or Constructive Ownership of
Shares that will or may violate Section 7.2.1(a), or any Person who would have
owned Shares that resulted in a transfer to the Charitable Trust
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pursuant to the provisions of Section 7.2.1(b), shall immediately give written
notice to the Trust of such event, or in the case of such a proposed or
attempted transaction, give at least 15 days prior written notice, and shall
provide to the Trust such other information as the Trust may request in order to
determine the effect, if any, of such acquisition or ownership on the Trust's
status as a REIT.
Section 7.2.4 Owners Required To Provide Information. From the Initial
Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower percentage as
required by the Code or the regulations promulgated thereunder) of the
outstanding Shares, within 30 days after the end of each taxable year, shall
give written notice to the Trust stating the name and address of such owner, the
number of Shares Beneficially Owned and a description of the manner in which
such Shares are held; provided that a Shareholder of record who holds
outstanding Shares as nominee for another Person, which other Person is required
to include in gross income the dividends received on such Shares (an "Actual
Owner"), shall give written notice to the Trust stating the name and address of
such Actual Owner and the number of Shares of such Actual Owner with respect to
which the Shareholder of record is nominee. Each owner shall provide to the
Trust such additional information as the Trust may request in order to determine
the effect, if any, of such Beneficial Ownership on the Trust's status as a REIT
and to ensure compliance with the Ownership Limit.
(b) each Person who is a Beneficial Owner or Constructive Owner of Shares
and each Person (including the Shareholders of record) who is holding Shares for
a Beneficial Owner or Constructive Owner shall provide to the Trust such
information as the Trust may request, in good faith, in order to determine the
Trust's status as a REIT and to comply with requirements of any taxing authority
or governmental authority or to determine such compliance.
Section 7.2.5 Remedies Not Limited. Subject to Section 5.2(u) and Section
7.5, nothing contained in this Section 7.2 shall limit the authority of the
Board of Trustees to take such other action as it deems necessary or advisable
to protect the Trust and the interests of its Shareholders in preserving the
Trust's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the application of
any of the provisions of this Section 7.2, Section 7.3 or any definition
contained in Section 7.1, the Board of Trustees shall have the power to
determine the application of the provisions of this Section 7.2 or Section 7.3
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with respect to any situation based on the facts known to it. If this Section
7.2 or Section 7.3 requires an action by the Board of Trustees and this
Declaration of Trust fails to provide specific guidance with respect to such
action, the Board of Trustees shall have the power to determine the action to be
taken so long as such action is not contrary to the provisions of this Section
7.2 or Sections 7.1 or 7.3.
Section 7.2.7 Exceptions.
(a) The Board, in its sole and absolute discretion, may grant to any
Person who makes a request therefor an exception to the Ownership Limit or the
Excluded Holder Limit with respect to the ownership of any series or class of
Preferred Shares, subject to the following conditions and limitations: (A) the
Board shall have determined that (x) assuming such Person would Beneficially Own
or Constructively Own the maximum amount of Common Shares and Preferred Shares
permitted as a result of the exception to be granted and (y) assuming that all
other Persons who would be treated as "individuals" for purposes of Section
542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of
the Code) would Beneficially Own or Constructively Own the maximum amount of
Common Shares and Preferred Shares permitted under this Article VII (taking into
account any exception, waiver, or exemption granted under this Section 7.2.7 to
(or with respect to) such Persons), the Trust would not be "closely held" within
the meaning of Section 856(h) of the Code (assuming that the ownership of Shares
is determined during the second half of a taxable year) and would not otherwise
fail to qualify as a REIT; and (B) such Person provides to the Board such
representations and undertakings, if any, as the Board may, in its sole and
absolute discretion, determine to be necessary in order for it to make the
determination that the conditions set forth in clause (A) above of this Section
7.2.7(a) have been or will continue to be satisfied (including, without
limitation, an agreement as to a reduced Ownership Limit, for such Person with
respect to the Beneficial Ownership or Constructive Ownership of one or more
other classes of Shares not subject to the exception), and such Person agrees
that any violation of such representations and undertakings or any attempted
violation thereof will result in the application of the remedies set forth in
Section 7.2 with respect to Shares held in excess of the Ownership Limit (as may
be applicable) with respect to such Person (determined without regard to the
exception granted such Person under this subparagraph (a)). If a member of the
Board requests that the Board grant an exception pursuant to this subparagraph
(a) with respect to such member or with respect to any other Person if such
Board member would be considered to be the Beneficial Owner or Constructive
Owner of Shares owned by such Person, such member of the Board shall not
participate in the decision of the Board as to whether to grant any such
exception.
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(b) In addition to exceptions permitted under subparagraph (a) above, the
Board in its sole and absolute discretion, may grant to any Person who makes a
request therefor an exception from the Ownership Limit if: (i) such Person
submits to the Board information satisfactory to the Board, in its reasonable
discretion, demonstrating that such Person is not an individual for purposes of
Section 542(a)(2) of the Code (determined taking into account Section
856(h)(3)(A) of the Code) and (ii) such Person provides to the Board such
representations and undertakings, if any, as the Board may, in its reasonable
discretion, require to ensure that the conditions in clause (i) hereof is
satisfied and will continue to be satisfied throughout the period during which
such Person owns Shares in excess of the Ownership Limit pursuant to any
exception thereto granted under this subparagraph (b), and such Person agrees
that any violation of such representations and undertakings or any attempted
violation thereof will result in the application of the remedies set forth in
Section 7.2 with respect to Shares held in excess of the Ownership Limit with
respect to such Person (determined without regard to the exception granted such
Person under this subparagraph (b)).
(c) Prior to granting any exception or exemption pursuant to subparagraph
(a) or (b), the Board must receive a ruling from the Internal Revenue Service or
advice of counsel, in either case in form and substance satisfactory to the
Board, in its sole and absolute discretion, as it may deem necessary or
advisable in order to determine or ensure the Trust's status as a REIT.
(d) Subject to Section 7.2.1(a)(ii), an underwriter that participates in a
public offering or a private placement of Shares (or securities convertible into
or exchangeable for Shares) may Beneficially Own or Constructively Own Shares
(or securities convertible into or exchangeable for Shares) in excess of the
Ownership Limit, but only to the extent necessary to facilitate such public
offering or private placement; and, provided, that the ownership of Shares by
such underwriter would not result in the Trust being "closely held" within the
meaning of Section 856(h) of the Code, or otherwise result in the Trust's
failing to qualify as a REIT.
Section 7.2.8 Increase in Ownership Limit. The Board of Trustees may from
time to time increase the Ownership Limit, subject to the limitations provided
in this Section 7.2.8.
(a) The Ownership Limit may not be increased if, after giving effect to
such increase, five Persons who are considered individuals pursuant to Section
542 of the Code, as modified by Section 856(h)(3) of the Code, could
Beneficially Own, in the aggregate, more than 49.5% of the value of the
outstanding Shares.
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(b) Prior to the modification of the Ownership Limit pursuant to this
Section 7.2.8, the Board may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure the Trust's status as a REIT if the modification in the
Ownership Limit were to be made.
Section 7.2.9 Legend. Each certificate for Shares shall bear substantially
the following legend:
The Shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose
of the Trust's maintenance of its status as a real estate investment
trust (a "REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and except as
expressly provided in the Trust's Declaration of Trust, (i) no Person
may Beneficially Own or Constructively Own Common Shares of the Trust
in excess of 9.8 percent (in value or number of Shares) of the
outstanding Common Shares of the Trust; (ii) with respect to any class
or series of Preferred Shares, no Person may Beneficially Own or
Constructively Own more than 9.8 percent (in value or number of
Shares) of the outstanding Shares of such class or series of Preferred
Shares of the Trust; (iii) no Person may Beneficially Own or
Constructively Own Shares that would result in the Trust being
"closely held" under Section 856(h) of the Code or otherwise cause the
Trust to fail to qualify as a REIT; and (iv) no Person may Transfer
Shares if such Transfer would result in Shares of the Trust being
owned by fewer than 100 Persons. Any Person who Beneficially Owns or
Constructively Owns or attempts to Beneficially Own or Constructively
Own Shares which cause or will cause a Person to Beneficially Own or
Constructively Own Shares in excess or in violation of the above
limitations must immediately notify the Trust. If any of the
restrictions on transfer or ownership are violated, the Shares
represented hereby will be automatically transferred to a Charitable
Trustee of a Charitable Trust for the benefit of one or more
Charitable Beneficiaries. In addition, upon the occurrence of certain
events, attempted Transfers in violation of the restrictions described
above may be void ab initio. A Person who attempts to Beneficially Own
or Constructively Own Shares in violation of the ownership limitations
described above shall have no claim, cause of action, or any recourse
whatsoever against a transferor of such Shares. Unless otherwise
defined herein, all capitalized terms in this legend have the meanings
defined in the Trust's Declaration of Trust,
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as the same may be amended from time to time, a copy of which,
including the restrictions on transfer and ownership, will be
furnished to each holder of Shares of the Trust on request and without
charge.
Instead of the foregoing legend, the certificate may state that the
Trust will furnish a full statement about certain restrictions on
transferability to a Shareholder on request and without charge.
Section 7.3 Transfer of Shares in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported Transfer or other
event described in Section 7.2.1(b) that would result in a transfer of Shares to
a Charitable Trust, such Shares shall be deemed to have been transferred to the
Charitable Trustee as trustee of a Charitable Trust for the exclusive benefit of
one or more Charitable Beneficiaries. Such transfer to the Charitable Trustee
shall be deemed to be effective as of the close of business on the Business Day
prior to the purported Transfer or other event that results in the transfer to
the Charitable Trust pursuant to Section 7.2.1(b). The Charitable Trustee shall
be appointed by the Trust and shall be a Person unaffiliated with the Trust and
any Prohibited Owner. Each Charitable Beneficiary shall be designated by the
Trust as provided in Section 7.3.7.
Section 7.3.2 Status of Shares Held by the Charitable Trustee. Shares
held by the Charitable Trustee shall be issued and outstanding Shares of the
Company. The Prohibited Owner shall have no rights in the Shares held by the
Charitable Trustee. The Prohibited Owner shall not benefit economically from
ownership of any Shares held in trust by the Charitable Trustee, shall have no
rights to dividends or other distributions and shall not possess any rights to
vote or other rights attributable to the Shares held in the Charitable Trust.
The Prohibited Owner shall have no claim, cause of action, or any other recourse
whatsoever against the purported transferor of such Shares.
Section 7.3.3 Dividend and Voting Rights. The Charitable Trustee
shall have all voting rights and rights to dividends or other distributions with
respect to Shares held in the Charitable Trust, which rights shall be exercised
for the exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Trust that Shares have been
transferred to the Charitable Trustee shall be paid by the recipient thereof
with respect to such Shares to the Charitable Trustee upon demand and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Charitable Trustee. Any dividends or distributions so paid over to the
Charitable Trustee shall be held in trust for the Charitable Beneficiary. The
Prohibited Owner shall have no voting
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rights with respect to Shares held in the Charitable Trust and, subject to
Maryland law, effective as of the date that Shares have been transferred to the
Charitable Trustee, the Charitable Trustee shall have the authority (at the
Charitable Trustee's sole discretion) (i) to rescind as void any vote cast by a
Prohibited Owner prior to the discovery by the Trust that Shares have been
transferred to the Charitable Trustee and (ii) to recast such vote in accordance
with the desires of the Charitable Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Trust has already taken
irreversible action, then the Charitable Trustee shall not have the power to
rescind and recast such vote. Notwithstanding the provisions of this Article
VII, until the Trust has received notification that Shares have been transferred
into a Charitable Trust, the Trust shall be entitled to rely on its share
transfer and other Shareholder records for purposes of preparing lists of
Shareholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of Shareholders.
Section 7.3.4 Rights Upon Liquidation. Upon any voluntary or
involuntary liquidation, dissolution or winding up of or any distribution of the
assets of the Trust, the Charitable Trustee shall be entitled to receive,
ratably with each other holder of Shares of the class or series of Shares that
is held in the Charitable Trust, that portion of the assets of the Trust
available for distribution to the holders of such class or series (determined
based upon the ratio that the number of Shares or such class or series of Shares
held by the Charitable Trustee bears to the total number of Shares of such class
or series of Shares then outstanding). The Charitable Trustee shall distribute
any such assets received in respect of the Shares held in the Charitable Trust
in any liquidation, dissolution or winding up of, or distribution of the assets
of the Trust, in accordance with Section 7.3.5.
Section 7.3.5 Sale of Shares by Charitable Trustee. Within 20 days of
receiving notice from the Trust that Shares have been transferred to the
Charitable Trust, the Charitable Trustee of the Charitable Trust shall sell the
Shares held in the Charitable Trust to a person, designated by the Charitable
Trustee, whose ownership of the Shares will not violate the ownership
limitations set forth in Section 7.2.1(a). Upon such sale, the interest of the
Charitable Beneficiary in the Shares sold shall terminate and the Charitable
Trustee shall distribute the net proceeds of the sale to the Prohibited Owner
and to the Charitable Beneficiary as provided in this Section 7.3.5. The
Prohibited Owner shall receive the lesser of (1) the price paid by the
Prohibited Owner for the Shares or, if the Prohibited Owner did not give value
for the Shares in connection with the event causing the Shares to be held in the
Charitable Trust (e.g., in the case of a gift, devise or other such
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transaction), the Market Price of the Shares on the day of the event causing the
Shares to be held in the Charitable Trust and (2) the price per share received
by the Charitable Trustee from the sale or other disposition of the Shares held
in the Charitable Trust. Any net sales proceeds in excess of the amount payable
to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary.
If, prior to the discovery by the Trust that Shares have been transferred to the
Charitable Trustee, such Shares are sold by a Prohibited Owner, then (i) such
Shares shall be deemed to have been sold on behalf of the Charitable Trust and
(ii) to the extent that the Prohibited Owner received an amount for such Shares
that exceeds the amount that such Prohibited Owner was entitled to receive
pursuant to this Section 7.3.5, such excess shall be paid to the Charitable
Trustee upon demand.
Section 7.3.6 Purchase Right in Shares Transferred to the Charitable
Trustee. Shares transferred to the Charitable Trustee shall be deemed to have
been offered for sale to the Trust, or its designee, at a price per share equal
to the lesser of (i) the price per share in the transaction that resulted in
such transfer to the Charitable Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Trust, or its designee, accepts such offer. The Trust shall have
the right to accept such offer until the Charitable Trustee has sold the Shares
held in the Charitable Trust pursuant to Section 7.3.5. Upon such a sale to the
Trust, the interest of the Charitable Beneficiary in the Shares sold shall
terminate and the Charitable Trustee shall distribute the net proceeds of the
sale to the Prohibited Owner.
Section 7.3.7 Designation of Charitable Beneficiaries. By written
notice to the Charitable Trustee, the Trust shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the
Charitable Trust such that (i) Shares held in the Charitable Trust would not
violate the restrictions set forth in Section 7.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be described in
Sections 501(c)(3), 170(b)(1)(A) or 170(c)(2) of the Code.
Section 7.4 Restrictions on Ownership and Transfer of Shares by
Benefit Plans.
Section 7.4.1 Ownership Limitations. Notwithstanding any other
provisions herein, if and to the extent that any Shares do not constitute
Publicly Offered Securities, then Benefit Plan Investors may not, on any date,
hold, individually or in the aggregate, 25 percent or more of the value of such
class of Shares. For purposes of determining whether Benefit Plan Investors
hold, individually or in the aggregate, 25 percent or more of the value of such
class of Shares, the value
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of Shares of such class held by any Trustee or officer of the Trust, or any
other Person who has discretionary authority or control with respect to the
assets of the Trust, or any Person who provides investment advice for a fee to
the Trust in connection with its assets, shall be disregarded.
Section 7.4.2 Remedies for Violations by Benefit Plan Investors. If
the Board of Trustees or any duly authorized committee thereof shall at any time
determine in good faith that (i) a Transfer or other event has taken place that
results in a violation of Section 7.4.1 or will otherwise result in the
underlying assets and property of the Trust becoming assets of any ERISA
Investor or (ii) that a Person intends to acquire or has attempted to acquire or
hold Shares in a manner that will result in a violation of Section 7.4.1 or will
otherwise result in the underlying assets and property of the Trust becoming
assets of any ERISA Investor, the Board of Trustees or a committee thereof shall
take such action as it deems advisable to mitigate, prevent or cure the
consequences that might result to the Trust from such Transfer or other event,
including without limitation, refusing to give effect to or preventing such
Transfer or event through redemption of such Shares or refusal to give effect to
the Transfer or event on the books of the Trust, or instituting proceedings to
enjoin such Transfer or other event.
Section 7.4.3 Information on Benefit Plan Status. Any Person who
acquires or attempts or intends to acquire or hold Shares shall provide to the
Trust such information as the Trust may request in order to determine whether
such acquisition or holding has or will result in a violation of Section 7.4.1
or otherwise result in the underlying assets and property of the Trust becoming
assets of any ERISA Investor, including the name and address of any Person for
whom a nominee holds Shares and whether the underlying assets of such Person
include assets of any Benefit Plan Investor.
Section 7.5 NYSE Transactions. Nothing in this Article VII shall
preclude the settlement of any transaction entered into through the facilities
of the NYSE or any other national securities exchange or automated inter-dealer
quotation system; provided, that the fact that the settlement of any transaction
takes place shall not negate the effect of any other provision of this Article
VII and any transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Article VII.
Section 7.6 Enforcement. The Trust is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article VII.
Section 7.7 Non-Waiver. No delay or failure on the part of the Trust
or the Board of Trustees in exercising any
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right hereunder shall operate as a waiver of any right of the Trust or the Board
of Trustees, as the case may be, except to the extent specifically waived in
writing.
ARTICLE VIII
SHAREHOLDERS
Section 8.1 Meetings. There shall be an annual meeting of the
Shareholders, to be held on proper notice at such time (after the delivery of
the annual report as provided in the Bylaws) and convenient location as shall be
determined by or in the manner prescribed in the Bylaws, for the election of the
Trustees, if required, and for the transaction of any other business within the
powers of the Trust. Except as otherwise provided in this Declaration of Trust,
special meetings of Shareholders may be called in the manner provided in the
Bylaws. If there are no Trustees, the officers of the Trust shall promptly call
a special meeting of the Shareholders entitled to vote for the election of
successor Trustees. Any meeting may be adjourned and reconvened as the Trustees
determine or as provided in the Bylaws.
Section 8.2 Voting Rights. Subject to the provisions of any class or
series of Shares then outstanding, the Shareholders shall be entitled to vote
only on the following matters: (a) election of Trustees as provided in Section
5.4 and the removal of Trustees as provided in Section 5.5; (b) amendment of
this Declaration of Trust as provided in Article X; (c) termination of the Trust
as provided in Section 12.2; (d) reorganization, merger or consolidation of the
Trust, or the sale or disposition of substantially all of the property of the
Trust, as provided in Article XI; (e) such other matters with respect to which
the Board of Trustees has adopted a resolution declaring that a proposed action
is advisable and directing that the matter be submitted to the Shareholders for
approval or ratification (including, without limitation, a resolution
recommending the termination of the Trust's status as a real estate investment
trust under the Code pursuant to Section 5.2(u) hereof); and (f) such other
matters as may be properly brought before a meeting by a Shareholder pursuant to
the Bylaws. Except with respect to the foregoing matters, no action taken by the
Shareholders at any meeting shall in any way bind the Board of Trustees.
Section 8.3 Preemptive and Appraisal Rights. Except as may be
provided by the Board of Trustees in setting the terms of classified or
reclassified Preferred Shares pursuant to Section 6.3, no holder of Shares
shall, as such holder, (a) have any preemptive right to purchase or subscribe
for any additional Shares of the Trust or any other security of the Trust which
it may issue or sell or (b) except as expressly required by Title 8,
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have any right to require the Trust to pay him the fair value of his Shares in
an appraisal or similar proceeding.
Section 8.4 Extraordinary Actions. Except as otherwise specifically
provided in this Declaration of Trust (including without limitation, in those
provisions relating to election and removal of Trustees and changes in the
number of authorized Shares), notwithstanding any provision of law permitting or
requiring any action to be taken or authorized by the affirmative vote of the
holders of a greater number of votes, any such action shall be effective and
valid if taken or authorized by the affirmative vote of not less than [sixty-six
and two-thirds percent (66 2/3%)] of all the votes entitled to be cast on the
matter.
Section 8.5 Action By Shareholders without a Meeting. Subject to
Title 8 and any other applicable provisions of law, the Bylaws may provide that
any action required or permitted to be taken at a meeting of the Shareholders
may be taken without a meeting by the written consent of all Shareholders
entitled to vote on such matter; provided, that all Shareholders entitled to
notice of any such meeting but not entitled to vote on such matter shall have
made a written waiver of any right to dissent to such action taken without a
meeting.
ARTICLE IX
LIABILITY LIMITATION, INDEMNIFICATION AND
TRANSACTIONS WITH THE TRUST
Section 9.1 Limitation of Shareholders' Liability. No Shareholder
shall be liable for any debt, claim, demand, judgment or obligation of any kind
of, against or with respect to the Trust by reason of his being a Shareholder,
nor shall any Shareholders be subject to any personal liability whatsoever, in
tort, contract or otherwise, to any person in connection with the property or
the affairs of the Trust by reason of his being a Shareholder.
Section 9.2 Limitation of Trustee and Officer Liability. To the
maximum extent that Maryland law in effect from time to time permits limitation
of the liability of trustees and officers of a real estate investment trust, no
Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholders for money damages. Neither the amendment nor repeal of this Section
9.2, nor the adoption or amendment of any other provision of this Declaration of
Trust inconsistent with this Section 9.2, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption. In
the absence of any Maryland statute limiting the liability of
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trustees and officers of a Maryland real estate investment trust for money
damages in a suit by or on behalf of the Trust or by any Shareholders, no
Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholders for money damages except to the extent that (a) the Trustee or
officer actually received an improper benefit or profit in money, property or
services, for the amount of the benefit or profit in money, property or services
actually received, or (b) a judgment or other final adjudication adverse to the
Trustee or officer is entered in a proceeding based on a finding in the
proceeding that the Trustee's or officer's action or failure to act was material
to the cause of action adjudicated in the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty.
Section 9.3 Indemnification. The Trust shall have the power, to the
maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former Shareholder, Trustee or officer of the Trust or (b) any
individual who, while a Trustee of the Trust and at the request of the Trust,
serves or has served as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former Shareholder, Trustee or officer of the Trust. The Trust
shall have the power, with the approval of its Board of Trustees, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Trust in any of the capacities described in (a) or (b) above
and to any employee or agent of the Trust or a predecessor of the Trust.
Section 9.4 Transactions Between the Trust and its Trustees,
Officers, Employees and Agents. Subject to any express restrictions in this
Declaration of Trust or adopted by the Trustees in the Bylaws or by resolution,
the Trust may enter into any contract or transaction of any kind with any
person, including any Trustee, officer, employee or agent of the Trust or any
person affiliated with a Trustee, officer, employee or agent of the Trust,
whether or not any of them has a financial interest in such transaction.
Section 9.5 Express Exculpatory Clauses in Instruments. The Board of
Trustees shall cause to be inserted in every written agreement, undertaking or
obligation made or issued on behalf of the Trust, an appropriate provision to
the effect that neither the Shareholders nor the Trustees, officers, employees
or agents of the Trust shall be liable under any written instrument creating an
obligation of the Trust, and all
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persons shall look solely to the property of the Trust for the payment of any
claim under or for the performance of that instrument. The omission of the
foregoing exculpatory language from any instrument shall not affect the validity
or enforceability of such instrument and shall not render any Shareholder,
Trustee, officer, employee or agent liable thereunder to any third party nor
shall the Trustees or any officer, employee or agent of the Trust be liable to
anyone for such omission.
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ARTICLE X
AMENDMENTS
Section 10.1 General. The Trust reserves the right from time to time
to make any amendment to this Declaration of Trust, now or hereafter authorized
by law, including any amendment altering the terms or contract rights, as
expressly set forth in this Declaration of Trust, of any Shares. All rights and
powers conferred by this Declaration of Trust on Shareholders, Trustees and
officers are granted subject to this reservation. Articles of Amendment to this
Declaration of Trust (a) shall be signed and acknowledged by at least a majority
of the Trustees, or an officer duly authorized by at least a majority of the
Trustees, (b) shall be filed for record as provided in Section 13.5 and (c)
shall become effective as of the later of the time the SDAT accepts the Articles
of Amendment for record or the time established in the Articles of Amendment,
not to exceed 30 days after the Articles of Amendment are accepted for record.
All references to this Declaration of Trust shall include all amendments
thereto.
Section 10.2 By Trustees. The Trustees may amend this Declaration of
Trust from time to time, in the manner provided by Title 8, without any action
by the Shareholders, to qualify as a real estate investment trust under the Code
or under Title 8.
Section 10.3 By Shareholders. Except as otherwise provided in this
Declaration of Trust, any amendment to this Declaration of Trust shall be valid
only if proposed in a resolution adopted by the Board of Trustees, which
resolution shall set forth the proposed amendment and declare that it is
advisable, and approved at an annual or special meeting of Shareholders by the
affirmative vote of not less than two-thirds of all the votes entitled to be
cast on the matter.
ARTICLE XI
REORGANIZATION; MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY
Section 11.1 Reorganization. Subject to the provisions of any class
or series of Shares at the time outstanding, the Trustees shall have the power
(i) to cause the organization of a corporation, association, trust or other
organization to take over the property of the Trust and carry on the affairs of
the Trust, or (ii) merge the Trust into, or sell, convey and transfer the
property of the Trust to, any such corporation, association, trust or
organization in exchange for securities thereof or beneficial interests therein,
and the assumption by the transferee of the liabilities of the Trust, and upon
the occurrence of (i) or (ii) above terminate the Trust and deliver such
securities or beneficial interests ratably among the
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Shareholders according to the respective rights of the class or series of Shares
held by them; provided, however, that any such action shall have been approved,
at a meeting of the Shareholders called for that purpose, by the affirmative
vote of the holders of not less than two-thirds of the Shares then outstanding
and entitled to vote thereon.
Section 11.2 Merger, Consolidation or Sale of Property of the Trust.
Subject to the provisions of any class or series of Shares at the time
outstanding, the Trustees shall have the power to (a) merge into another entity,
(b) consolidate the Trust with one or more other entities into a new entity or
(c) sell, lease, exchange or otherwise transfer or dispose of all or
substantially all of the property of the Trust. Any such action must be approved
by the Board of Trustees and, after notice to all Shareholders entitled to vote
on the matter, by the affirmative vote of not less than two-thirds of all the
votes entitled to be cast on the matter.
ARTICLE XII
DURATION AND TERMINATION OF TRUST
Section 12.1 Duration. The Trust shall continue perpetually unless
terminated pursuant to Section 12.2 or pursuant to any applicable provision of
Title 8.
Section 12.2 Termination.
(a) Subject to the provisions of any class or series of Shares at the
time outstanding, the Trust may be terminated at any meeting of Shareholders, by
the affirmative vote of two-thirds of all the votes entitled to be cast on the
matter. Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration of Trust shall
continue, including the powers to fulfill or discharge the Trust's contracts,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining property of the Trust to one or more
persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
its liabilities and do all other acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such
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releases, indemnities and agreements as they deem necessary for their
protection, the Trustees may distribute the remaining property of the Trust
among the Shareholders so that after payment in full or the setting apart for
payment of such preferential amounts, if any, to which the holders of any Shares
at the time outstanding shall be entitled, the remaining property of the Trust
shall, subject to any participating or similar rights of Shares at the time
outstanding, be distributed ratably among the holders of Common Shares at the
time outstanding.
(b) After termination of the Trust, the liquidation of its business
and the distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and file with the Trust's records a document certifying
that the Trust has been duly terminated, and the Trustees shall be discharged
from all liabilities and duties hereunder, and the rights and interests of all
Shareholders shall cease.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Governing Law. This Declaration of Trust is executed by
the undersigned Trustees and delivered in the State of Maryland with reference
to the laws thereof, and the rights of all parties and the validity,
construction and effect of every provision hereof shall be subject to and
construed according to the laws of the State of Maryland without regard to
conflicts of laws provisions thereof.
Section 13.2 Reliance by Third Parties. Any certificate shall be
final and conclusive as to any person dealing with the Trust if executed by the
Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying
to: (a) the number or identity of Trustees, officers of the Trust or
Shareholders; (b) the due authorization of the execution of any document; (c)
the action or vote taken, and the existence of a quorum, at a meeting of the
Board of Trustees or Shareholders; (d) a copy of this Declaration of Trust or of
the Bylaws as a true and complete copy as then in force; (e) an amendment to
this Declaration of Trust; (f) the termination of the Trust; or (g) the
existence of any fact or relating to the affairs of the Trust. No purchaser,
lender, transfer agent or other person shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trust on
its behalf or by any officer, employee or agent of the Trust.
Section 13.3 Severability.
(a) The provisions of this Declaration of Trust are severable, and if
the Board of Trustees shall determine, with the advice of counsel, that any one
or more of such provisions
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(the "Conflicting Provisions") are in conflict with the Code, Title 8 or other
applicable federal or state laws, the Conflicting Provisions, to the extent of
the conflict, shall be deemed never to have constituted a part of this
Declaration of Trust, even without any amendment of this Declaration of Trust
pursuant to Article X and without affecting or impairing any of the remaining
provisions of this Declaration of Trust or rendering invalid or improper any
action taken or omitted prior to such determination. No Trustee shall be liable
for making or failing to make such a determination.
(b) If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such holding shall apply only to
the extent of any such invalidity or unenforceability and shall not in any
manner affect, impair or render invalid or unenforceable such provision in any
other jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.
Section 13.4 Construction. In this Declaration of Trust, unless the
context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include all genders.
The title and headings of different parts are inserted for convenience and shall
not affect the meaning, construction or effect of this Declaration of Trust. In
defining or interpreting the powers and duties of the Trust and its Trustees and
officers, reference may be made by the Trustees or officers, to the extent
appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3
of the Corporations and Associations Article of the Annotated Code of Maryland.
Section 13.5 Recordation. This Declaration of Trust and any Articles
of Amendment hereto shall be filed for record with the SDAT and may also be
filed or recorded in such other places as the Trustees deem appropriate, but
failure to file for record this Declaration of Trust or any Articles of
Amendment hereto in any office other than in the State of Maryland shall not
affect or impair the validity or effectiveness of this Declaration of Trust or
any amendment hereto. A restated Declaration of Trust shall, upon filing, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration of Trust and the various
Articles of Amendment thereto.
THIRD: The amendment to and restatement of the Declaration of Trust
of the Trust as hereinabove set forth has been duly approved and advised by the
Board of Trustees by majority vote thereof and approved by the sole shareholder
of the Trust as required by law.
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FOURTH: The current address of the principal office of the Trust is
220 East 42nd Street, New York, New York 10017.
FIFTH: The name and address of the Trust's current resident agent is
as set forth in Article IV of the foregoing amendment and restatement of the
Declaration of Trust of the Trust.
SIXTH: The number of trustees of the Trust and the names of those
currently in office are as set forth in Article V of the foregoing amendment and
restatement of the Declaration of Trust of the Trust.
IN WITNESS WHEREOF, these Articles of Amendment and Restatement of
Declaration of Trust have been signed on this ______ day of ____________, 1998
by all of the Trustees of the Trust, each of whom acknowledges, that this
document is his free act and deed, and that to the best of his knowledge,
information, and belief, the matters and facts set forth herein are true in all
material respects and that the statement is made under the penalties for
perjury.
___________________________________
Stuart L. Scott
___________________________________
Jon E. Bortz
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EXHIBIT 3.2
FORM OF
LASALLE HOTEL PROPERTIES
BYLAWS
LaSalle Hotel Properties, a real estate investment trust organized under
the laws of the State of Maryland (the "Trust") having the Corporation Trust
Incorporated as its resident agent located at 300 East Lombard Street,
Baltimore, Maryland 21202, hereby adopts the following as the Bylaws (as the
same may be amended from time to time, the "Bylaws") of the Trust:
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of LaSalle Hotel
Properties (the "Trust") shall be located at such place or places as the
Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional offices
at such places as the Trustee may from time to time determine or the business of
the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. The Trust shall hold its first annual
meeting of shareholders in May 1999. Thereafter, an annual meeting of the
shareholders for the election of Trustees and the transaction of any business
within the powers of the Trust shall be held during the month of May of each
year, after the delivery of the annual report referred to in Section 12 of this
Article II, at a convenient location and on proper notice, on a date and at the
time set by the Trustees, beginning with the year 2000. Failure to hold an
annual meeting does not invalidate the Trust's existence or affect any otherwise
valid acts of the Trust.
Section 3. SPECIAL MEETINGS. The Chairman of the Board or the
President or one-third of the Trustees may call special meetings of the
shareholders. Special meetings of shareholders shall also be called by the
Secretary upon the written request of the holders of shares entitled to cast not
less than a majority of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. Within ten (10) days of the receipt of such a
request, the Secretary shall inform such shareholders of the reasonably
estimated cost of preparing a mailing notice of the meeting (including all proxy
materials that may be required in connection therewith) and, upon payment by
such
<PAGE>
shareholders to the Trust of such costs, the Secretary shall, within thirty (30)
days of such payment, or such longer period as may be necessitated by compliance
with any applicable statutory or regulatory requirements, give notice to each
shareholder entitled to notice of the meeting.
Unless requested by shareholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any meeting of the shareholders held during the preceding twelve months.
Section 4. NOTICE. Not less than ten nor more than 90 days before
each meeting of shareholders, the Secretary shall give to each shareholder
entitled to vote at such meeting and to each shareholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting is
called, either by mail or by presenting it to such shareholder personally or by
leaving it at his residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder at his post office address as it appears on the records of
the Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of shareholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the shareholders, the
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the Chief Executive Officer, if
there be one, the President, the Vice Presidents in their order of rank and
seniority, or a Chairman chosen by the shareholders entitled to cast a majority
of the votes which all shareholders present in person or by proxy are entitled
to cast, shall act as Chairman, and the Secretary, or, in his absence, an
Assistant Secretary, or in the absence of both the Secretary and Assistant
Secretaries, a person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of shareholders, the presence in
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the declaration of trust
("Declaration of Trust") for the vote necessary for the adoption of any measure.
If, however, such quorum shall not be present at any meeting of the
shareholders, the shareholders entitled to vote at such meeting, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time to a date not more than 120 days after the original record date without
notice other than announcement at the meeting. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 8. VOTING. Subject to the rights of the holders of any
series of Preferred Shares (as defined in the Declaration of Trust) to elect
additional Trustees under specified circumstances, a plurality of all the votes
cast at a meeting of shareholders duly called and at which a
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quorum is present shall be sufficient to elect a Trustee. Each share may be
voted for as many individuals as there are Trustees to be elected and for whose
election the share is entitled to be voted. A majority of the votes cast at a
meeting of shareholders duly called and at which a quorum is present shall be
sufficient to approve any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is required herein or by
statute or by the Declaration of Trust. Unless otherwise provided in the
Declaration of Trust, each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Section 9. PROXIES. A shareholder may cast the votes entitled to be
cast by the shares owned of record by him either in person or by proxy executed
in writing by the shareholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the Secretary of the Trust before or at the time of
the meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee hereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person other
than the shareholder. The resolution shall set forth the class of shareholders
who may make the certification, the purpose for which the certification may be
made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the share
transfer books, the time after the record date or closing of the share transfer
books within which the certification must be received by the Trust; and any
other provisions with respect to the procedure which the Trustees consider
necessary or desirable. On receipt of such certification, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Notwithstanding any other provision contained herein or in the
Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations
and Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of
beneficial interest of the Trust. This section may be repealed, in whole or in
part, at any time, whether before or after an acquisition of control shares and,
upon such repeal, may, to the extent provided by any successor bylaw, apply to
any prior or subsequent control share acquisition.
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Section 11. INSPECTORS. At any meeting of shareholders, the chairman
of the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report the results and perform such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.
Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. REPORTS TO SHAREHOLDERS. The Trustees shall submit to
the shareholders at or before the annual meeting of shareholders a report of the
business and operations of the Trust during the prior fiscal year, containing a
balance sheet and a statement of income and surplus of the Trust, accompanied by
the certification of an independent certified public accountant, and such
further information as the Trustees may determine is required pursuant to any
law or regulation to which the Trust is subject. Within the earlier of 20 days
after the annual meeting of shareholders or 120 days after the end of the fiscal
year of the Trust, the Trustees shall place the annual report on file at the
principal office of the Trust and with any governmental agencies as may be
required by law and as the Trustees may deem appropriate.
Section 13. NOMINATIONS AND PROPOSALS BY SHAREHOLDERS.
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Trustees and the proposal of business to be considered
by the shareholders may be made at an annual meeting of the shareholders (i)
pursuant to the Trust's notice of meeting, (ii) by or at the direction of the
Trustees or (iii) by any shareholder of the Trust who was a shareholder of
record both at the time of giving of notice provided for in this Section 13(a)
and at the time of the annual meeting, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in this Section 13(a).
(2) For nominations or other business to be properly brought before
an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a) (1)
of this Section 13, the shareholder must have given timely notice thereof in
writing to the Secretary of the Trust and such other business must otherwise be
a proper matter for action by shareholders. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Trust not later than the close of business on the 60th day nor earlier than
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date or if the Trust has not previously held
an annual meeting, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of 60th day prior
to such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by the Trust. In no
event shall the public announcement of a postponement or adjournment of an
annual meeting to a later date or time commence a new time period for the giving
of a shareholder's notice as described above. Such shareholder's notice shall
set forth as to each person whom the shareholder proposes to nominate for
election or reelection as a
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Trustee all information relating to such person that is required to be disclosed
in solicitations of proxies for election of Trustees in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such
person's written consent to being named int he proxy statement as a nominee and
to serving as a Trustee if elected); (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such shareholder, as they appear on the Trust's books, and of
such beneficial owner and (y) the number of each class of shares of the Trust
which are owned beneficially and of record by such shareholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 13 to the contrary, in the event that the number of
Trustees to be elected to the Board of Trustees is increased and there is no
public announcement by the Trust naming all of the nominees for Trustee or
specifying the size of the increased Board of Trustees at least 70 days prior to
the first anniversary of the preceding year's annual meeting, a shareholder's
notice required by this Section 13(a) shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
Trust not later than the close of business on the tenth day following the day on
which such public announcement is first made by the Trust.
(b) Special Meetings of the Shareholders. Only such business shall
be conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Trust's notice of meeting. Nominations of
persons for election to the Board of Trustees may be made at a special meeting
of shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting (ii) by or at the direction of the Board of Trustees or (iii)
provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record both at the time of giving of notice provided for in this
Section 13(b) and at the time of the special meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 13(b). In addition to the foregoing requirements, for nominations or
other business to be properly brought before a special meeting by a shareholder,
such shareholder's notice containing the information required by paragraph (a)
(2) of this Section 13 must be delivered to the Secretary at the principal
executive offices of the Trust not earlier than the close of business on the
90th day prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting. In no event shall the public announcement of a postponement or
adjournment of a special meeting to a later date or time commence a new time
period for the giving of a shareholder's notice as described above.
(c) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 13 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 13. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in
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this Section 13 and, if any proposed nomination or business is not in compliance
with this Section 13, to declare that such nomination or proposal shall be
disregarded.
(2) For purposes of this Section 13, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associate
Press or comparable news service or in a document publicly filed by the Trust
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 13, a
shareholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 13. Nothing in this Section 13 shall be
deemed to affect any rights of shareholders to request inclusion of proposals
in, nor any of the rights of the Trust to omit a proposal from, the Trust's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 14. INFORMAL ACTION BY SHAREHOLDERS. Subject to the rights
of the holders of any series of Preferred Shares to elect additional Trustees
under specified circumstances and notwithstanding the provisions of Section 13
of this Article II, any action required or permitted to be taken at a meeting of
shareholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all shareholders entitled to vote on such
matters; provided, that all shareholders entitled to notice of any such meeting
but not entitled to vote on such matter shall have made a written waiver of any
right to dissent to such action taken without a meeting.
Section 15. VOTING BY BALLOT. Voting on any question or in any
election at a meeting of shareholders may be viva voce unless the presiding
officer shall order or any shareholder present at such meeting in person or by
proxy shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER.
The business and affairs of the Trust shall be managed under the direction of
its Board of Trustees. A Trustee shall be an individual at least 21 years of
age who is not under legal disability. In case of failure to elect Trustees at
an annual meeting of the shareholders, the Trustees holding over shall continue
to direct the management of the business and affairs of the Trust until their
successors are elected and qualify.
Section 2. NUMBER. At any regular meeting or at any special meeting
called for that purpose, a majority of the entire Board of Trustees may
establish, increase or decrease the number of Trustees, subject to any
limitations on the number of Trustees set forth in the Declaration of Trust.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time
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and place, either within or without the State of Maryland, for the holding of
regular meetings of the Trustees without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Trustees may be
called by or at the request of the Chairman of the Board, the Chief Executive
Officer or the President or by a majority of the Trustees then in office. The
person or persons authorized to call special meetings of the Trustees may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Trustees called by them.
Section 5. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed, facsimile-transmitted or
mailed to each Trustee at his business or residence address. Personally
delivered or telegraphed notices shall be given at least two days prior to the
meeting. Notice by mail shall be given at least five days prior to the meeting.
Telephone or facsimile-transmission notice shall be given at least 24 hours
prior to the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. If given by telegram, such notice shall be deemed to be given when the
telegram is delivered to the telegraph company. Telephone notice shall be
deemed given when the Trustee is personally given such notice in a telephone
call to which he is a party. Facsimile-transmission notice shall be deemed
given upon completion of the transmission of the message to the number given to
the Trust by the Trustee and receipt of a completed answer-back indicating
receipt. Neither the business to be transacted at, nor the purpose of, any
annual, regular or special meeting of the Trustees need be stated in the notice,
unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the Trustees shall constitute a
quorum for convening any meeting of the Trustees, provided that, if less than a
majority of such Trustees are present at said meeting, a majority of the
Trustees present may adjourn the meeting from time to time without further
notice, and provided further that if, pursuant to the Declaration of Trust or
these Bylaws, the vote of a majority of a particular group of Trustees is
required for action, a quorum must also include a majority of such group.
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
Section 7. VOTING. The action of the majority of the Trustees
present at a meeting at which a quorum is present when such meeting is convened
shall be the action of the Trustees, unless the concurrence of a greater
proportion is required for such action by applicable statute, the Declaration of
Trust or these Bylaws.
Section 8. TELEPHONE MEETINGS. Trustees may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY TRUSTEES. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
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Section 10. VACANCIES. If for any reason any or all of the Trustees
cease to be Trustees, such event shall not terminate the Trust or affect these
Bylaws or the powers of the remaining Trustees hereunder (even if fewer than two
Trustees remain). Any vacancy (including a vacancy created by an increase in
the number of Trustees) shall be filled, at any regular meeting or at any
special meeting called for that purpose, by a majority of the Trustees. Any
individual so elected as Trustee shall hold office until the next annual meeting
of Shareholders and until his successor is elected and qualifies.
Section 11. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Trustees
may from time to time appoint a Chairman of the Board and a Vice Chairman of the
Board. The Chairman of the Board shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present and shall in
general oversee all the business and affairs of the Trust. In the absence of
the Chairman of the Board, the Vice Chairman of the Board shall preside at such
meetings at which he shall be present. The Chairman and the Vice Chairman of
the Board may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Trustees or by these Bylaws to an officer or some other agent of the Trust or
shall be required by law to be otherwise executed. The Chairman of the Board
and the Vice Chairman of the Board shall perform such other duties as may be
assigned to him or them by the Trustees.
Section 12. COMPENSATION. Trustees shall not receive any stated
salary for their services as Trustees but, by resolution of the Trustees, may
receive fixed sums per year or per meeting or per visit to real property owned
or to be acquired by the Trust and for any service or activity they perform or
engage in as Trustees. Such fixed sums may be paid either in cash or in shares
of the Trust. Trustees may be reimbursed for expenses of attendance, if any, at
each annual, regular or special meeting of the Trustees or of any committee
thereof; and for their expenses, if any, in connection with each property visit
and any other service or activity performed or engaged in as Trustees; but
nothing herein contained shall be construed to preclude any Trustees from
serving the Trust in any other capacity and receiving compensation therefor.
Section 13. REMOVAL OF TRUSTEES. The shareholders may at any time,
remove any Trustee in the manner provided in the Declaration of Trust. Subject
to the rights of the holders of any series of Preferred Shares to elect
additional Trustees resulting from the removal of one or more Trustees or under
other specified circumstances, the shareholders may elect a successor to fill a
vacancy on the Board of Trustees which results from the removal of a Trustee.
Section 14. LOSS OF DEPOSITS. No Trustee shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 15. SURETY BONDS. Unless required by law, no Trustee shall
be obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 16. RELIANCE. Each Trustee, officer, employee and agent of
the Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or
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employees or by the adviser, accountants, appraisers or other experts or
consultants selected by the Trustees or officers of the Trust, regardless of
whether such counsel or expert may also be a Trustee.
Section 17. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of the
Maryland General Corporation Law (the "MGCL") shall be available for and apply
to any contract or other transaction between the Trust and any of its Trustees
or between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
Section 18. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. The Trustees shall have no responsibility to devote their full time to
the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust (other than a full-time officer, employee or agent of the Trust), in his
personal capacity or in a capacity as an affiliate, employee, or agent of any
other person, or otherwise, may have business interests and engage in business
activities similar or in addition to those of or relating to the Trust.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATION. The Trustees may
appoint from among its members an Executive Committee, an Audit Committee and a
Compensation Committee, each composed of at least two Trustees, and other
committees, each composed of one or more Trustees, to serve at the pleasure of
the Trustees; provided, that the membership of the Compensation Committee shall
consist of a majority of Independent Trustees and the membership of the Audit
Committee shall consist only of Independent Trustees so long as they continue in
office. An individual shall be deemed to be an "Independent Trustee" hereunder
if such individual is not an affiliate of the Trust and is not an employee of
the Trust.
Section 2. POWERS. The Trustees may delegate to committees appointed
under Section 1 of this Article IV any of the powers of the Trustees, except as
prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in
the same manner as notice for special meetings of the Board of Trustees. One-
third, but not less than two (except for one-member committees), of the members
of any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
of Trustees may designate a chairman of any committee, and such chairman or any
two members of any committee (except for one-member committees) may fix the time
and place of its meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any such committee, the members
thereof present at any meeting and not disqualified from voting, whether or not
they constitute a quorum, may unanimously appoint another Trustee to act at the
meeting in the place of such absent or disqualified members.
Each Committee shall keep minutes of its proceedings and shall report
the same to the Board of Trustees at the next succeeding meeting, and any action
by the committee shall be subject to
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revision and alteration by the Board of Trustees, provided that no rights of
third persons shall be affected by any such revision or alteration.
Section 4. TELEPHONE MEETINGS. Members of a committee of the
Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Trustees shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
Section 7. EMERGENCY. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Trust by its Trustees and officers as contemplated by the
Declaration of Trust and these Bylaws, any two or more available members of the
then incumbent Executive Committee shall constitute a quorum of that Committee
for the full conduct and management of the affairs and business of the Trust in
accordance with the provisions of this Article IV. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available Trustees shall elect an Executive Committee
composed of any two members of the Board of Trustees, whether or not they be
officers of the Trust, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Trust in
accordance with the foregoing provisions of this Section 7. This Section 7
shall be subject to implementation by resolution of the Board of Trustees passed
from time to time for that purpose, and any provisions of the Bylaws (other than
this Section 7) and any resolutions which are contrary to the provisions of this
Section 7 or to the provisions of any such implementing resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section 7 that it shall be to the advantage of the Trust to resume
the conduct and management of its affairs and business under all the other
provisions of these Bylaws.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust shall
include a President, a Secretary and a Treasurer and may include a Chief
Executive Officer, a Chief Operating Officer, a Chief Financial Officer, a Chief
Legal Counsel, one or more Vice Presidents, one or more Assistant Secretaries
and one or more Assistant Treasurers. In addition, the Trustees may from time
to time appoint such other officers with such powers and duties as they shall
deem necessary or desirable. The officers of the Trust shall be elected
annually by the Trustees at the first meeting of the Trustees held after each
annual meeting of shareholders. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as may be
convenient. Each
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officer shall hold office until his successor is elected and qualifies or until
his death, resignation or removal in the manner hereinafter provided. Any two
or more offices except President and Vice President may be held by the same
person. In their discretion, the Trustees may leave unfilled any office except
that of President and Secretary. Election of an officer or agent shall not of
itself create contract rights between the Trust and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Trust may be removed at any time by the Trustees if in their judgment the best
interests of the Trust would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Trust may resign at any time by giving written notice of his
resignation to the Trustees, the Chairman of the Board, the President or the
Secretary. Any resignation shall take effect at any time subsequent to the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a
resignation shall not be necessary to make it effective unless otherwise stated
in the resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Trust.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Trustee for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a
Chief Executive Officer from among the elected officers. The Chief Executive
Officer shall have responsibility for implementation of the policies of the
Trust, as determined by the Trustees, and for the administration of the business
affairs of the Trust. In the absence of both the Chairman and Vice Chairman of
the Board, the Chief Executive Officer shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present.
Section 5. PRESIDENT. In the absence of the Chairman, the Vice
Chairman of the Board and the Chief Executive Officer, the President shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present. In the absence of a designation of a Chief Executive Officer
by the Trustees, the President shall be the Chief Executive Officer and shall be
ex officio a member of all committees that may, from time to time, be
constituted by the Trustees. The President may execute any deed, mortgage,
bond, contract or other instrument, except in cases where the execution thereof
shall be expressly delegated by the Trustees or by these Bylaws to some other
officer or agent of the Trust or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Chief Executive
Officer or the Trustees from time to time.
Section 6. CHIEF OPERATING OFFICER. The Trustees may designate a
Chief Operating Officer from among the elected officers. Said officer will have
the responsibilities and duties as set forth by the Chief Executive Officer, the
President or the Trustees.
Section 7. VICE PRESIDENTS. In the absence of the President or in
the event of a vacancy in such office, the Vice President (or in the event there
be more than one Vice President, the Vice Presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the President and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President; and shall perform such other duties as from time to time may be
assigned to him or her by the Chief Executive Officer, the President or the
Trustees. The Trustees may designate one or more Vice Presidents as
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Executive Vice President, Senior Vice President or as Vice President for
particular areas of responsibility.
Section 8. TREASURER. The Treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.
The Treasurer shall disburse the funds of the Trust as may be ordered
by the Trustees, taking proper vouchers for such disbursements, and shall render
to the Chief Executive Officer, the President and the Trustees, at the regular
meetings of the Trustees or whenever they may require it, an account of all his
or her transactions as Treasurer and of the financial condition of the Trust.
If required by the Trustees, the Treasurer shall give the Trust a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his or her office and for
the restoration of the Trust, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, moneys and
other property of whatever kind in his or her possession or under his or her
control belonging to the Trust.
Section 9. CHIEF FINANCIAL OFFICER. The Trustees may designate a
Chief Financial Officer from among the elected officers. Said officer will have
the responsibilities and duties as set forth by the Chief Executive Officer, the
President or the Trustees.
Section 10. CHIEF LEGAL COUNSEL. The Trustees may designate a Chief
Legal Counsel from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Chief Executive Officer, the
President or the Trustees.
Section 11. SECRETARY. The Secretary shall (a) keep the minutes of
the proceedings of the shareholders, the Trustees and committees of the Trustees
in one or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (c) be custodian of the Trust records and of the seal of the Trust; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) have general charge of the
share transfer books of the Trust; and (f) in general perform such other duties
as from time to time may be assigned to him by the Chief Executive Officer, the
President or the Trustees.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or Treasurer, respectively,
or by the Chief Executive Officer, the President or the Trustees. The Assistant
Treasurers shall, if required by the Trustees, give bonds for the faithful
performance of their duties in such sums and with such surety or sureties as
shall be satisfactory to the Trustees.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Trustees and no officer shall
be prevented from receiving such salary or other compensation by reason of the
fact that he or she is also a Trustee.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in the
name of and on behalf of the Trust and such authority may be general or confined
to specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or agent of the Trust in such
manner as shall from time to time be determined by the Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interest held by him in the Trust. Each
certificate shall be signed by the Chief Executive Officer, the President or a
Vice President and countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and may be sealed with the seal, if any,
of the Trust. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Trust shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the Trust,
shall have a statement of such restriction, limitation, preference or redemption
provision, or a summary thereof, plainly stated on the certificate. In lieu of
such statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable
and title thereto and to the shares they represent shall be transferred by
delivery thereof to the same extent as those of a Maryland stock corporation.
Upon surrender to the Trust or the transfer agent of the Trust of a share
certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Trust shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
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The Trust shall be entitled to treat the holder of record of any share
or shares as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of beneficial
interest of the Trust will be subject in all respects to the Declaration of
Trust and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, an officer designated by the Trustees may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he shall require or to give bond, with
sufficient surety, to the Trust to indemnify it against any loss or claim which
may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of shareholders not less
than ten days, before the date on which the meeting or particular action
requiring such determination of shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than 20
days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of shareholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the Trustees,
declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
14
<PAGE>
Section 5. SHARE LEDGER. The Trust shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
FISCAL YEAR
The Trustees shall have the power, from time to time, to fix the
fiscal year of the Trust by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
shares of beneficial interest of the Trust may be authorized and declared by the
Trustees, subject to the provisions of law and the Declaration of Trust.
Dividends and other distributions may be paid in cash, property or shares of the
Trust, subject to the provisions of law and the Declaration of Trust.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any funds of the Trust available
for dividends or other distributions such sum or sums as the Trustees may from
time to time, in their absolute discretion, think proper as a reserve fund for
contingencies, for equalizing dividends or other distributions, for repairing or
maintaining any property of the Trust or for such other purpose as the Trustees
shall determine to be in the best interest of the Trust, and the Trustees may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
PROHIBITED INVESTMENTS AND ACTIVITIES;
INVESTMENT POLICIES
Notwithstanding anything to the contrary in the Declaration of Trust,
the Trust shall not enter into any transaction referred to in (i), (ii) or (iii)
below which it does not believe is in the best interests of the Trust, and will
not, without the approval of a majority of the disinterested
15
<PAGE>
Trustees (other than in connection with the initial public offering of shares by
the Trust or pursuant to agreements entered into in connection with such
offering), (i) acquire from or sell to any Trustee, officer or employee of the
Trust, any corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in which a Trustee, officer or employee of the Trust owns
more than a one percent interest or any affiliate of any of the foregoing, any
of the assets or other property of the Trust, (ii) make any loan to or borrow
from any of the foregoing persons or (iii) engage in any other transaction with
any of the foregoing persons. Each such transaction will be in all respects on
such terms as are, at the time of the transaction and under the circumstances
then prevailing, fair and reasonable to the Trust. Subject to the foregoing and
the provisions of the Declaration of Trust, the Board of Trustees may from time
to time adopt, amend, revise or terminate any policy or policies with respect to
investments by the Trust as it shall deem appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal
by the Trust. The seal shall have inscribed thereon the name of the Trust and
the year of its formation. The Trustees may authorize one or more duplicate
seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Trust.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust shall indemnify (a) any Trustee, officer or shareholder or any
former Trustee, officer or shareholder (including among the foregoing, for all
purposes of this Article XII and without limitation, any individual who, while a
Trustee, officer or shareholder and at the express request of the Trust, serves
or has served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, shareholder,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) who has been successful, on the
merits or otherwise, in the defense of a proceeding to which he was made a party
by reason of service in such capacity, against reasonable expenses incurred by
him in connection with the proceeding, (b) any Trustee or officer or any former
Trustee or officer against any claim or liability to which he may become subject
by reason of such status unless it is established that (i) his act or omission
was material to the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) he
actually received an improper personal benefit in money, property or services or
(iii) in the case of a criminal proceeding, he had reasonable cause to believe
that his act or omission was unlawful and (c) each shareholder or former
shareholder against any claim or liability to which he may become subject by
reason of such status. In addition, the Trust shall, without requiring a
preliminary determination of the ultimate entitlement to
16
<PAGE>
indemnification, pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or
former Trustee, officer or shareholder made a party to a proceeding by reason of
such status, provided that, in the case of a Trustee or officer, the Trust shall
have received (i) a written affirmation by the Trustee or officer of his good
faith belief that he has met the applicable standard of conduct necessary for
indemnification by the Trust as authorized by these Bylaws and (ii) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
Trust if it shall ultimately be determined that the applicable standard of
conduct was not met. The Trust may, with the approval of its Trustees, provide
such indemnification or payment or reimbursement of expenses to any Trustee,
officer or shareholder or any former Trustee, officer or shareholder who served
a predecessor of the Trust and to any employee or agent of the Trust or a
predecessor of the Trust. Neither the amendment nor appeal of this Article, nor
the adoption or amendment of any other provision of the Declaration of Trust or
these Bylaws inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification or payment or reimbursement of expenses, as the
case may be, under Section 2-418 of the MGCL for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders such
other and further indemnification or payment or reimbursement of expenses, as
the case may be, to the fullest extent permitted by the MGCL, as in effect from
time to time, for directors of Maryland corporations.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws.
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ARTICLE XV
MISCELLANEOUS
All references to the Declaration of Trust shall include any
amendments thereto. In these Bylaws, unless the context otherwise requires,
words used in the singular or in the plural include both the plural and singular
and words denoting any gender include all genders.
* * * *
18
<PAGE>
EXHIBIT 4.1
[FORM OF SHARE CERTIFICATE]
LASALLE HOTEL PROPERTIES
The Trust will furnish to any shareholder upon request and without charge a
full statement of the designations, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of shares of each class authorized to be
issued and, with respect to the classes of shares which may be issued in series,
the difference in the relative rights and preferences between the shares of each
series, to the extent that they have been set, and the authority of the Board of
Trustees to fix and determine the relative rights and preferences of subsequent
series. Such request may be made to the Secretary of the Trust at its principal
office or to the transfer agent.
The Shares represented by this certificate are subject to restrictions on
transfer for the purpose of the Trust and maintenance of its status as a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to certain further restrictions and except as provided in the
Declaration of Trust of the Trust, no Person may (i) Beneficially or
Constructively Own Shares in excess of 9.8% of the number of outstanding Shares,
(ii) Beneficially Own Shares that would result in the Shares being beneficially
owned by fewer than 100 Persons (determined without reference to any rules of
attribution), (iii) Beneficially Own Shares that would result in the Trust being
"closely held" under Section 856(h) of the Code, or (iv) Constructively Own
Shares that would cause the Trust to Constructively Own 10% or more of the
ownership interests in a tenant of the Trust's real property within the meaning
of Section 856(d)(2)(8) of the Code. Any Person who attempts to Beneficially or
Constructively Own Shares in excess of the above limitations must immediately
notify the Trust in writing. If any restrictions above are violated, the Shares
represented hereby will be transferred automatically to a Charitable Trust for
the benefit of a charitable beneficiary. In addition, upon the occurrence of
certain events, attempted transfers in violation of the restrictions described
above may be void ab initio. All capitalized terms in this legend have the
meanings defined in the Trust's Amended and Restated Declaration of Trust, as
the same may be further amended from time to time, a copy of which, including
the restrictions on transfer, will be sent without charge to each Shareholder
who so requests. Such requests must be made to the Secretary of the Trust at
its principal office or to the transfer agent.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN
OR DESTROYED, THE TRUST WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
The following abbreviations, when used in the inscription of the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______________ Custodian
_________________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act___________________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE)
Common Shares of Beneficial Interest, par value $.01
per share, represented by the within Certificate, and do hereby irrevocably
constitute and appoint._________________
Attorney to transfer the said Shares on the books of
the within-named Trust with full power of substitution in the premises.
Dated,
(Sign here)
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature Guaranteed By:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE MEDALLION PROGRAM). PURSUANT TO S.E.C.
RULE 17Ad-15.
<PAGE>
NUMBER LASALLE HOTEL PROPERTIES SHARES
A REAL ESTATE INVESTMENT TRUST FORMED UNDER THE
LAWS OF THE STATE OF MARYLAND
COMMON SHARES SEE REVERSE FOR
OF BENEFICIAL INTEREST CERTAIN DEFINITIONS
PAR VALUE $.01 PER SHARE
CUSIP
-----------
THIS CERTIFIES THAT
--------------------
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST
PAR VALUE $.01 PER SHARE OF
LASALLE HOTEL PROPERTIES (the "Trust"), transferable on the books of the
Trust in person or by attorney duly authorized in writing upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all provisions of the Trust's
Declaration of Trust and Bylaws and any amendments thereof, copies of which are
on file with the transfer agent, to all the provisions of which the holder
hereof by acceptance of this certificate assents. This certificate is not valid
until countersigned and registered by the transfer agent and registrar.
Witness the facsimile Seal of the Trust and the facsimile signatures of
its duly authorized officers.
DATED:
COUNTERSIGNED AND REGISTERED:
BY TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
------------------------ -------------------------
[Name] [Name]
[Title] [Title]
LASALLE HOTEL PROPERTIES
SEAL OF TRUST
1998
MARYLAND
<PAGE>
EXHIBIT 4.2
[FORM OF]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND CANNOT BE SOLD OR TRANSFERRED
UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION UNDER SUCH ACT OR
LAWS IS AVAILABLE.
LASALLE HOTEL PROPERTIES
Common Share Purchase Right
LaSalle Hotel Properties (the "Company"), a Maryland real estate investment
trust, hereby certifies that, for value received, LaSalle Hotel Advisors, Inc.,
or assigns, is entitled, subject to the terms set forth below, to purchase from
the Company Common Shares of the Company equal to (_____________) fully paid and
non-assessable common shares of beneficial interest, par value $.01 per share,
of the Company (the "Common Shares"), or, at the option of the Company, the
Company shall cause LaSalle Hotel Operating Partnership, L.P. (the
"Partnership") to issue units of limited partnership (the "Units") on a one
Common Share for one Unit basis) at a purchase price, subject to the provisions
of Paragraph 3 hereof, of [IPO Price] per Common Share Unit (the "Purchase
Price") at any time and from time to time after one year from the date of
issuance and prior to [ten years from IPO Date]. The number and character of
such shares are subject to adjustment as provided below, and the term "Common
Share" or "Unit" shall mean, unless the context otherwise requires, the shares
of beneficial interest, stock or other securities or property at the time
deliverable upon the exercise of this Right.
1. EXERCISE OF RIGHT. The purchase rights evidenced by this Right shall
be exercised by the holder hereof ("Holder") surrendering this Right, with the
form of subscription at the end hereof duly executed by such Holder, to the
Company at its office in New York, New York (or such other office as may be
designated by the Company from time to time), accompanied by payment of the
Purchase Price (as provided below). This Right may be exercised for less than
the full number of Common Shares or Units at the time called for hereby, in
which case the number of shares or units receivable upon the exercise of this
Right as a whole, and the sum payable upon the exercise of this Right as a
whole, shall be proportionately reduced. Upon any such partial exercise, the
Company at its expense will forthwith issue to the Holder hereof a new Right or
Rights of like tenor calling for the number of Common Shares or Units as to
which rights have not been exercised, such Right or Rights to be issued in the
name of the Holder hereof or his nominee.
The Purchase Price may be paid, at the election of the Holder of this Right: in
cash (by readily available funds wire transfer) or by certified or bank
cashier's check.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Right and payment of the Purchase Price, and in any
event within five (5) business days thereafter, the Company, at its expense,
will cause to be issued in the name of and delivered to the Holder hereof a
certificate or certificates for the number of fully paid and non-assessable
Common Shares, or Units (if certificated) or other securities or property to
which such Holder shall be entitled upon such exercise, plus, in lieu of any
fractional share or
<PAGE>
unit interest to which such Holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current market value of one full Common
Share or Unit or other securities to which such Holder shall be so entitled.
3. ADJUSTMENT FOR ISSUE OR SALE OF COMMON SHARES OR UNITS AT LESS THAN
PURCHASE PRICE. In case, at any time or from time to time after the date of
issuance of this Right ("Issuance Date"), the Company shall issue Common Shares
or cause the Partnership to issue Units (other than (i) securities outstanding
on the date hereof, (ii) awards made pursuant to any company stock option plan
awarded to officers, the Company's Board of Trustees, employees or advisors to
the Company, or (iii) awards made pursuant to any incentive compensation plan or
arrangement approved by the Company's Board of Trustees or by the Compensation
Committee of the Company's Board of Trustees, (such securities, collectively,
the "Subject Securities")) for a consideration per share less than the Current
Market Price (as defined below) per share (the Current Market Price being the
"Trigger Price") (or, if a Pro Forma Adjusted Trigger Price shall be in effect
as provided below in this Paragraph 3, then less than such Pro Forma Adjusted
Trigger Price per share), then and in each such case the Holder of this Right,
upon the exercise hereof as provided in Paragraph 1 hereof, shall be entitled to
receive, in lieu of Common Shares or Units theretofore receivable upon the
exercise of this Right, a number of Common Shares or Units determined by (a)
dividing the Trigger Price by a Pro Forma Adjusted Trigger Price per share to be
computed as provided below in this Paragraph 3, and (b) multiplying the
resulting quotient by the number of Common Shares or Units called for on the
face of this Right. A Pro Forma Adjusted Trigger Price per share or unit shall
be the price computed (to the nearest cent, a fraction of half cent or more
being considered a full cent):
by dividing (i) the sum of (x) the result obtained by multiplying the
number of Common Shares of the Company outstanding immediately prior
to such issue or sale by the Trigger Price (or, if a prior Pro Forma
Adjusted Trigger Price shall be in effect, by such Price), and (y) the
consideration, if any, received by the Company upon such issue or
sale, by (ii) the number of Common Shares of the Company outstanding
immediately after such issue or sale.
For the purposes hereof, the Current Market Price per Common Share on any
date shall be deemed to be the average of the daily closing prices for the 10
consecutive Business Days before the day in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange or,
if such Common Shares are not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which such Common Shares are
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities Dealers
Automated Quotations National Market System or, if such Common Shares are not
listed or admitted to trading on any national securities exchange or quoted on
such National Market System, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Company for the purpose. In the event
that no such market trading exists, the current market price of such Common
Shares will be determined by three independent nationally recognized investment
banking firms selected by the Company in such manner as the
2
<PAGE>
Board of Trustees or an authorized committee thereof deems appropriate.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which the principal national securities exchange on which the
Common Shares are listed or the NASDAQ National Market System, if the shares are
quoted thereon or neither is applicable, the New York Stock Exchange, is closed
for trading. If any other securities of the Company valued with reference to
this Paragraph 3, their Current Market Value shall be determined in a manner
consist with the foregoing provisions of this paragraph.
For the purpose of this Paragraph 3:
3.1. Stock Splits, Dividends, etc., in Common Shares or Convertible
--------------------------------------------------------------
Securities. In case the Company splits its Common Shares or shall declare any
- ----------
dividend, or make any other distribution, upon any beneficial interest or other
securities of the Company of any class payable in Common Shares, or in any
beneficial interest or other securities directly or indirectly convertible into
or exchangeable for Common Shares (any such beneficial interest or other
securities being hereinafter called "Convertible Securities"), such split,
declaration or distribution shall be deemed to be an issue or sale (as of the
record date for such split, dividend or other distribution), without
consideration, of such Common Shares or such Convertible Securities, as the case
may be.
3.2. Issuance or Sale of Convertible Securities. In case the Company
------------------------------------------
shall issue or sell any Convertible Securities other than the Subject
Securities, there shall be determined the price per share for which Common
Shares are issuable upon the conversion or exchange thereof, such determination
to be made by dividing (a) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (b) the maximum
number of Common Shares of the Company issuable upon the conversion or exchange
of all such Convertible Securities.
If the price per share so determined shall be less than the Trigger
Price (or, if a Pro Forma Adjusted Trigger Price shall be in effect, less than
such price) as of the date of such issue or sale, then such issue or sale shall
be deemed to be an issue or sale for cash (as of the date of issue or sale of
such Convertible Securities) of such maximum number of Common Shares at the
price per share so determined, provided that, if such Convertible Securities
shall by their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration, if any, payable to the Company,
or in the rate of exchange, upon the conversion or exchange thereof, the Pro
Forma Adjusted Trigger Price per share shall, forthwith upon any such increase
becoming effective, be readjusted to reflect the same, and provided, further,
that upon the expiration of such rights of conversion or exchange of such
Convertible Securities, if any thereof shall not have been exercised, the Pro
Forma Adjusted Trigger Price per share shall forthwith be readjusted and
thereafter be the price which it would have been had an adjustment been made on
the basis that the only Common Shares so issued or sold were those issued or
sold upon the conversion or exchange of such Convertible Securities, and that
they were issued or sold for the consideration actually received by the Company
upon such conversion or exchange, plus the consideration, if any, actually
received by the Company for the issue or sale of all such Convertible Securities
which shall have been converted or exchanged.
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<PAGE>
3.3. Grant of Rights or Options for Common Shares. In case the Company
--------------------------------------------
shall grant any rights or options to subscribe for, purchase or otherwise
acquire Common Shares of any class other than the Subject Securities, there
shall be determined the price per share for which Common Shares are issuable
upon the exercise of such rights or options, such determination to be made by
dividing (a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of such rights or options, by (b) the maximum number of Common
Shares issuable upon the exercise of such rights or options.
If the price per share so determined shall be less than the Trigger
Price (or, if a Pro Forma Adjusted Trigger Price shall be in effect, less than
such price) as of the date of such issue or sale, then the granting of such
rights or options shall be deemed to be an issue or sale for cash (as of the
date of the granting of such rights or options) of such maximum number of Common
Shares at the price per share so determined, provided that, if such rights or
options shall by their terms provide for an increase or increases, with the
passage of time, in the amount of additional consideration, if any, payable to
the Company upon the exercise thereof, the Pro Forma Adjusted Trigger Price per
share shall, forthwith upon any such increase becoming effective, be readjusted
to reflect the same, and provided, further, that upon the expiration of such
rights or options, if any thereof shall not have been exercised, the Pro Forma
Adjusted Trigger Price per share shall forthwith be readjusted and thereafter be
the price which it would have been had an adjustment been made on the basis that
the only Common Shares so issued or sold were those issued or sold upon the
exercise of such rights or options and that they were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised.
3.4. Grant of Rights or Options for Convertible Securities. In case the
-----------------------------------------------------
Company shall grant any rights or options to subscribe for, purchase or
otherwise acquire Convertible Securities other than the Subject Securities, such
Convertible Securities shall be deemed, for the purposes of subparagraph 3.2.
above, to have been issued or sold for the total amount received or receivable
by the Company as consideration for the granting of such rights or options plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights or options, provided that, upon the
expiration of such rights or options, if any thereof shall not have been
exercised, the Pro Forma Adjusted Trigger Price per share shall forthwith be
readjusted and thereafter be the price which it would have been had an
adjustment been made upon the basis that the only Convertible Securities so
issued or sold were those issued or sold upon the exercise of such rights or
options and that they were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such rights or options,
whether or not exercised.
3.5. Dilution in Case of Other Beneficial Interests or Securities. In
------------------------------------------------------------
case any shares of beneficial interest or other securities, other than Common
Shares of the Company, shall at any time be receivable upon the exercise of this
Right, and in case any additional shares of such beneficial interest or any
additional such securities (or any beneficial interest or other securities
convertible into or exchangeable for any such beneficial interest or securities)
shall be issued or
4
<PAGE>
sold for a consideration per share such as to dilute the purchase rights
evidenced by this Right, then and in each such case the Pro Forma Adjusted
Trigger Price per share shall forthwith be adjusted, substantially in the manner
provided for above in this Paragraph 3, so as to protect the Holder of this
Right against the effect of such dilution.
3.6. Expenses, etc., Deducted. In case any Common Shares or Convertible
------------------------
Securities or any rights or options to subscribe for, purchase or otherwise
acquire any Common Share or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Company therefor, after deducting any expenses incurred and any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale.
3.7. Determination of Consideration. In case any Common Shares or
------------------------------
Convertible Securities or any rights or options to subscribe for, purchase or
otherwise acquire any Common Shares or Convertible Securities shall be issued or
sold for a consideration other than cash (or a consideration which includes cash
and other assets) then, for the purpose of this Paragraph 3, the Board of
Trustees of the Company shall promptly determine the fair value of such
consideration, and such Common Shares, Convertible Securities, rights or options
shall be deemed to have been issued or sold on the date of such determination in
good faith. Such value shall not be more than the amount at which such
consideration is recorded in the books of the Company for accounting purposes
except in the case of an acquisition accounted for on a pooling of interest
basis. In case any Common Shares or Convertible Securities or any rights or
options to subscribe for, purchase or otherwise acquire any Common Shares or
Convertible Securities shall be issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
the Board of Trustees of the Company shall promptly determine in good faith what
part of the consideration so received is to be deemed to be the consideration
for the issue or sale of such Common Shares or Convertible Securities or such
rights or options.
The Company covenants and agrees that, should any determination of
fair value of consideration or of allocation of consideration be made by the
Board of Trustees of the Company, pursuant to this subparagraph 3.7, it will,
not less than seven (7) days after any and each such determination, deliver to
the Holder of this Right a certificate signed by the President or a Vice
President and the Treasurer or an Assistant Treasurer of the Company reciting
such value as thus determined and setting forth the nature of the transaction
for which such determination was required to be made, the nature of any
consideration, other than cash, for which Common Shares, Convertible Securities,
rights or options have been or are to be issued, the basis for its valuation,
the number of Common Shares which have been or are to be issued, and a
description of any Convertible Securities, rights or options which have been or
are to be issued, including their number, amount and terms.
3.8. Record Date Deemed Issue Date. In case the Company shall take a
-----------------------------
record of the Holders of shares of any class for the purpose of entitling them
(a) to receive a dividend or a distribution payable in Common Shares or in
Convertible Securities, or (b) to subscribe for, purchase or otherwise acquire
Common Shares or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of the Common Shares issued or sold or
deemed to have been issued or sold upon the declaration of such dividend or the
making of such
5
<PAGE>
other distribution, or the date of the granting of such rights of subscription,
purchase or other acquisition, as the case may be.
3.9. Shares Considered Outstanding. The number of Common Shares
-----------------------------
outstanding at any given time shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of Common Shares, but shall exclude
shares in the treasury of the Company.
3.10. Duration of Pro Forma Adjusted Trigger Price. Following each
--------------------------------------------
computation or readjustment of a Pro Forma Adjusted Trigger Price as provided in
this Paragraph 3, the newly computed or adjusted Pro Forma Adjusted Trigger
Price shall remain in effect until a further computation or readjustment thereof
is required by this Paragraph 3.
4. ADJUSTMENT FOR DIVIDENDS IN OTHER SHARES OF BENEFICIAL INTEREST ,
PROPERTY, ETC.; RECLASSIFICATIONS, ETC. In case at any time or from time to
time after the Issuance Date the holders of the Common Shares of the Company of
any class (or any other shares of beneficial interest or other securities at the
time receivable upon the exercise of this Right) shall have received, or, on or
after the record date fixed for the determination of eligible shareholders,
shall have become entitled to receive:
(a) other or additional shares or other securities or property (other
than cash) by way of dividend;
(b) any cash paid or payable out of capital or paid-in surplus or
surplus created as a result of a revaluation of property by way of
dividend; or
(c) other or additional (or less) shares or other securities or
property (including cash) by way of stock-split, spin-off, split-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement;
(other than additional Common Shares issued to holders of Common Shares as a
stock dividend or stock-split, adjustments in respect of which shall be covered
by the provisions of Paragraph 3 hereof), then in each case the Holder of this
Right, upon the exercise hereof as provided in Paragraph 1 hereof, shall be
entitled to receive, in lieu of, or in addition to, as the case may be, the
shares theretofore receivable upon the exercise of this Right, the amount of
shares or other securities or property (including cash in the cases referred to
in clauses (b) and (c) above) which such Holder would hold on the date of such
exercise if, on the Issuance Date, he had been the holder of record of the
number of Common Shares of the Company called for on the face of this Right and
had thereafter, during the period from the Issuance Date to and including the
date of such exercise, retained such shares and/or all other or additional (or
less) stock or other securities or property (including cash in the cases
referred to in clauses (b) and (c) above) receivable by him as aforesaid during
such period, giving effect to all adjustments called for during such period by
Paragraphs 3 and 5 hereof.
5. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of
any reorganization of the Company (or any other trust, corporation, or other
entity the shares or other securities of which are at the time deliverable on
the exercise of this Right) after the date hereof, or in case, after such date,
the Company (or any such other trust, corporation or other entity) shall
consolidate with or merge into another trust, corporation, or
6
<PAGE>
other entity or convey all or substantially all its assets to another trust,
corporation or other entity, then and in each such case the Holder of this
Right, upon the exercise hereof as provided in Paragraph 1 hereof, at any time
after the consummation of such reorganization, consolidation, merger or
conveyance, shall be entitled to receive the shares or other securities or
property to which such Holder would have been entitled upon such consummation if
such Holder had exercised this Right immediately prior thereto, all subject to
further adjustments as provided in Paragraphs 3 and 4 hereof; in each such case,
the terms of this Right shall be applicable to the shares or other securities or
property receivable upon the exercise of this Right after such consummation.
6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
declaration of trust or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Right, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder hereof against dilution or other impairment.
Without limiting the generality of the foregoing, the Company will not increase
the par value of any Common Shares receivable upon the exercise of this Right
above the amount payable therefor upon such exercise, and at all times will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable stock upon the exercise
of this Right.
7. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment in the number of Common Shares or other shares, securities or
property receivable on the exercise of this Right, at the request of the Holder
of this Right the Company at its expense shall promptly cause independent public
accountants of recognized standing, selected by the Company, to compute such
adjustment in accordance with the terms of this Right and prepare a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based, including a statement of (a) the consideration received or
to be received by the Company for any additional shares issued or sold or deemed
to have been issued or sold, (b) the number of Common Shares outstanding or
deemed to be outstanding and (c) the Pro Forma Adjusted Trigger Price. The
Company will forthwith mail a copy of each such certificate to the Holder of
this Right.
8. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the Holders of its Common
Shares (or other shares or securities at the time deliverable upon the
exercise of this Right) for the purpose of entitling or enabling them
to receive any dividend (other than a cash or stock dividend at the
same rate as the rate of the last cash or stock dividend theretofore
paid) or other distribution, or to exercise any preemptive right
pursuant to the Company's declaration of trust, or to receive any
right to subscribe for or purchase any shares of any class or any
other securities, or to receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the beneficial interests or capital stock of the Company, any
consolidation or merger
7
<PAGE>
of the Company with or into another trust, corporation, or other entity
or any conveyance of all or substantially all of the assets of the
Company to another trust, corporation or other entity; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder of this Right a notice specifying, as the case may be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up is to
take place, and the times, if any is to be fixed, as of which the holders of
record of Common Shares (or such other shares or securities at the time
deliverable upon the exercise of this Right) shall be entitled to exchange their
Common Shares of any class (or such other shares or securities) for
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up or (iii) the amount and character of the shares or other securities
proposed to be issued or granted, the date of such proposed issuance or grant
and the persons or class of persons to whom such shares or other securities are
to be offered, issued or granted. Such notice shall be mailed at least thirty
(30) days prior to the date therein specified.
9. RESERVATION OF SHARES, ETC., ISSUABLE ON EXERCISE OF RIGHTS. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Right and other similar Rights, such Common
Shares and other shares, securities and property as from time to time shall be
issuable upon the exercise of this Right and all other similar Rights at the
time outstanding.
10. REPLACEMENT OF RIGHT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Right and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement in an amount reasonably satisfactory to it, or (in the case
of mutilation) upon surrender and cancellation thereof, the Company will issue,
in lieu thereof, a new Right of like tenor.
11. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Right in the event of any default by the Company in its
performance of or compliance with any of the terms of this Right are not and
will not be adequate, and that the same may be specifically enforced.
12. NEGOTIABILITY, ETC. This Right is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Title to this Right may be transferred by endorsement (by the
Holder hereof executing the form of assignment at the end hereof
including guaranty of signature) and delivery in the same manner as in
the case of a negotiable instrument transferable by endorsement and
delivery.
(b) Any person in possession of this Right properly endorsed is
authorized to represent himself as absolute owner hereof and is
granted power to transfer
8
<PAGE>
absolute title hereto by endorsement and delivery hereof to a bona
fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Right in favor of
every such bona fide purchaser, and every such bona fide purchaser
shall acquire title hereto and to all rights represented hereby.
(c) Until this Right is transferred on the books of the Company, the
Company may treat the registered Holder of this Right as the absolute
owner hereof for all purposes without being affected by any notice to
the contrary.
13. SUBDIVISION OF RIGHTS. This Right (as well as any new Rights issued
pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the Holder hereof, at the principal office of the Company
for any number of new Rights of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of Common Shares of
the Company which may be subscribed for and purchased hereunder.
14. REGISTRATION RIGHTS. The Holders of Rights shall have the
registration rights contained in the agreement attached as Exhibit A.
15. MAILING OF NOTICES, ETC. All notices, requests, claims, demands,
waivers and other communications hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand, when delivered by
courier, three days after being deposited in the mail (registered or certified
mail, postage prepaid, return receipt requested), or when received by facsimile
transmission upon receipt of a confirmed transmission report, as follows:
If to the Company: LaSalle Hotel Properties
220 East 42nd Street
New York, New York 10017
Tel: (212) 661-6161
Fax: (212) 687-8170
Attention: President
and if to the Holder of this Right to the address furnished to the Company in
writing by the last Holder of this Right who shall have furnished an address to
the Company in writing. Either the Company or the Holder of this Right, by
notice given to the other parties hereto in accordance with this Section 15, may
change the address or facsimile transmission number to which such notice or
other communications are to be sent to such party.
16. HEADINGS, ETC. The headings in this Right are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
17. CHANGE, WAIVER, ETC. Neither this Right nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
9
<PAGE>
18. GOVERNING LAW. This Right shall be construed and enforced in
accordance with the laws of the State of New York.
LASALLE HOTEL PROPERTIES
Dated: [date of issuance]
Attest:
- -----------------------------------------
10
<PAGE>
[To be signed only upon exercise of Right]
To LASALLE HOTEL PROPERTIES:
The undersigned, the Holder of the within Right, hereby irrevocably elects
to exercise the purchase right represented by such Right for, and to purchase
thereunder, ____________ Common Shares of ___________________ and herewith makes
payment of $____________ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to, ____________, whose
address is ________________________.
Dated:
-------------------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the Right)
Address:
11
<PAGE>
Net Issue Election Notice
- --- ----- -------- ------
To: ______________________________ Date: ___________________
The undersigned hereby elects under Paragraph 1 to surrender the right to
purchase _____________ Common Shares pursuant to this Right. The certificate(s)
for the shares issuable upon such net issue election shall be issued in the name
of the undersigned or as otherwise indicated below.
_________________________________________
Signature
_________________________________________
Name for Registration
_________________________________________
Mailing Address
12
<PAGE>
[To be signed only upon transfer of Right]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________ the right represented by the within Right to
purchase the ____________ Common Shares of LASALLE HOTEL PROPERTIES to which the
within Right relates, and appoints ________________________ attorney to transfer
said right on the books of ___________________ with full power of substitution
in the premises.
Dated:
----------------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the Right)
Address:
In the presence of
- -----------------------
13
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND CANNOT BE SOLD OR TRANSFERRED
UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION UNDER SUCH ACT OR
LAWS IS AVAILABLE.
LASALLE HOTEL PROPERTIES
Common Share Purchase Right
LaSalle Hotel Properties (the "Company"), a Maryland real estate investment
trust, hereby certifies that, for value received, [Steinhardt/Cargill], or
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company [Common Shares of the Company equal to 1.155%/0.88% of IPO Total Equity
Value] (_____________) fully paid and non-assessable common shares of beneficial
interest, par value $.01 per share, of the Company (the "Common Shares"), at a
purchase price, subject to the provisions of Paragraph 3 hereof, of [IPO Price]
per share (the "Purchase Price") at any time and from time to time after one
year from the date of issuance and prior to [ten years from IPO Date]. The
number and character of such shares are subject to adjustment as provided below,
and the term "Common Share" shall mean, unless the context otherwise requires,
the shares of beneficial interest, stock or other securities or property at the
time deliverable upon the exercise of this Right.
1. EXERCISE OF RIGHT. The purchase rights evidenced by this Right shall
be exercised by the holder hereof ("Holder") surrendering this Right, with the
form of subscription at the end hereof duly executed by such Holder, to the
Company at its office in New York, New York (or such other office as may be
designated by the Company from time to time), accompanied by payment of the
Purchase Price (as provided below). This Right may be exercised for less than
the full number of Common Shares at the time called for hereby, in which case
the number of shares receivable upon the exercise of this Right as a whole, and
the sum payable upon the exercise of this Right as a whole, shall be
proportionately reduced. Upon any such partial exercise, the Company at its
expense will forthwith issue to the Holder hereof a new Right or Rights of like
tenor calling for the number of Common Shares as to which rights have not been
exercised, such Right or Rights to be issued in the name of the Holder hereof or
his nominee.
The Purchase Price may be paid, at the election of the Holder of this
Right: (i) in cash (by readily available funds wire transfer) or by certified or
bank cashier's check; (ii) through the delivery to the Company of other
securities, including other Rights in addition to those then being exercised, to
be credited in full against the Purchase Price in an amount equal to the Current
Market Value thereof, as determined in accordance with Paragraph 3 hereof; (iii)
if exercised in connection with any registered public offering of the Company's
Common Shares, by payment arrangements calling for the delivery to the Company
from proceeds of the sale of the Common Shares to be sold by the Holder in such
public offering of an amount equal to the Purchase Prices for the Common Shares
for which this Right is then being exercised; or (iv) by any combination of the
foregoing. The Board of Trustees shall respond promptly in writing to an
<PAGE>
inquiry by the Holder as to the fair market value of any securities the Holder
may wish to deliver to the Company pursuant to clause (ii) above.
The Holder may elect to receive, without the payment by the Holder of any
other Purchase Price or additional consideration, Common Shares equal to the
value of this Right or any portion hereof by the surrender of this Right (or
such portion of this Right being so exercised) together with the Net Issue
Election Notice annexed hereto duly executed, at the office of the Company.
Thereupon, the Company shall issue to the Holder such number of fully paid and
nonassessable Common Shares as is computed using the following formula:
X = Y (A-B)
-------
A
where X= the number of Common Shares to be issued to the Holder
Y= the number of Common Shares covered by this Right in respect of
which the net issue election is made
A= the Current Market Value of one Common Share as determined in
accordance with Paragraph 3 hereof
B= the Purchase Price in effect under this Right at the time the net
issue election is made
The Board of Trustees shall respond promptly in writing to an inquiry by the
Holder as to the Current Market Value of a Common Share.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Right and payment of the Purchase Price, and in any
event within five (5) business days thereafter, the Company, at its expense,
will cause to be issued in the name of and delivered to the Holder hereof a
certificate or certificates for the number of fully paid and non-assessable
Common Shares or other securities or property to which such Holder shall be
entitled upon such exercise, plus, in lieu of any fractional share interest to
which such Holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current market value of one full Common Share or other
securities to which such Holder shall be so entitled.
3. ADJUSTMENT FOR ISSUE OR SALE OF COMMON SHARES AT LESS THAN PURCHASE
PRICE. In case, at any time or from time to time after the date of issuance of
this Right ("Issuance Date"), the Company shall issue Common Shares (other than
(i) securities outstanding on the date hereof, (ii) awards made pursuant to any
company stock option plan awarded to officers, the Company's Board of Trustees,
employees or advisors to the Company, or (iii) awards made pursuant to any
incentive compensation plan or arrangement approved by the Company's Board of
Trustees or by the Compensation Committee of the Company's Board of Trustees,
(such securities, collectively, the "Subject Securities")) for a consideration
per share less than the Current Market Price (as defined below) per share (the
Current Market Price being the "Trigger Price") (or, if a Pro Forma Adjusted
2
<PAGE>
Trigger Price shall be in effect as provided below in this Paragraph 3, then
less than such Pro Forma Adjusted Trigger Price per share), then and in each
such case the Holder of this Right, upon the exercise hereof as provided in
Paragraph 1 hereof, shall be entitled to receive, in lieu of Common Shares
theretofore receivable upon the exercise of this Right, a number of Common
Shares determined by (a) dividing the Trigger Price by a Pro Forma Adjusted
Trigger Price per share to be computed as provided below in this Paragraph 3,
and (b) multiplying the resulting quotient by the number of Common Shares called
for on the face of this Right. A Pro Forma Adjusted Trigger Price per share
shall be the price computed (to the nearest cent, a fraction of half cent or
more being considered a full cent):
by dividing (i) the sum of (x) the result obtained
by multiplying the number of Common Shares of the
Company outstanding immediately prior to such issue
or sale by the Trigger Price (or, if a prior Pro Forma
Adjusted Trigger Price shall be in effect, by such
Price), and (y) the consideration, if any, received
by the Company upon such issue or sale, by (ii) the
number of Common Shares of the Company outstanding
immediately after such issue or sale.
For the purposes hereof, the Current Market Price per Common Share on any
date shall be deemed to be the average of the daily closing prices for the 10
consecutive Business Days before the day in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange or,
if such Common Shares are not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which such Common Shares are
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities Dealers
Automated Quotations National Market System or, if such Common Shares are not
listed or admitted to trading on any national securities exchange or quoted on
such National Market System, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Company for the purpose. In the event
that no such market trading exists, the current market price of such Common
Shares will be determined by three independent nationally recognized investment
banking firms selected by the Company in such manner as the Board of Trustees or
an authorized committee thereof deems appropriate. "Business Day" means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which the
principal national securities exchange on which the Common Shares are listed or
the NASDAQ National Market System, if the shares are quoted thereon or neither
is applicable, the New York Stock Exchange, is closed for trading. If any other
securities of the Company valued with reference to this Paragraph 3, their
Current Market Value shall be determined in a manner consist with the foregoing
provisions of this paragraph.
For the purpose of this Paragraph 3:
3.1. Stock Splits, Dividends, etc., in Common Shares or Convertible
--------------------------------------------------------------
Securities. In case the Company splits its Common Shares or shall declare any
- ----------
dividend, or make any other distribution, upon any beneficial interest or other
securities of the Company of any class payable in Common Shares, or in any
beneficial interest or other securities directly or indirectly convertible into
or exchangeable for Common Shares (any such beneficial interest or other
3
<PAGE>
securities being hereinafter called "Convertible Securities"), such split,
declaration or distribution shall be deemed to be an issue or sale (as of the
record date for such split, dividend or other distribution), without
consideration, of such Common Shares or such Convertible Securities, as the case
may be.
3.2. Issuance or Sale of Convertible Securities. In case the Company
------------------------------------------
shall issue or sell any Convertible Securities other than the Subject
Securities, there shall be determined the price per share for which Common
Shares are issuable upon the conversion or exchange thereof, such determination
to be made by dividing (a) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (b) the maximum
number of Common Shares of the Company issuable upon the conversion or exchange
of all such Convertible Securities.
If the price per share so determined shall be less than the Trigger
Price (or, if a Pro Forma Adjusted Trigger Price shall be in effect, less than
such price) as of the date of such issue or sale, then such issue or sale shall
be deemed to be an issue or sale for cash (as of the date of issue or sale of
such Convertible Securities) of such maximum number of Common Shares at the
price per share so determined, provided that, if such Convertible Securities
shall by their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration, if any, payable to the Company,
or in the rate of exchange, upon the conversion or exchange thereof, the Pro
Forma Adjusted Trigger Price per share shall, forthwith upon any such increase
becoming effective, be readjusted to reflect the same, and provided, further,
that upon the expiration of such rights of conversion or exchange of such
Convertible Securities, if any thereof shall not have been exercised, the Pro
Forma Adjusted Trigger Price per share shall forthwith be readjusted and
thereafter be the price which it would have been had an adjustment been made on
the basis that the only Common Shares so issued or sold were those issued or
sold upon the conversion or exchange of such Convertible Securities, and that
they were issued or sold for the consideration actually received by the Company
upon such conversion or exchange, plus the consideration, if any, actually
received by the Company for the issue or sale of all such Convertible Securities
which shall have been converted or exchanged.
3.3. Grant of Rights or Options for Common Shares. In case the Company
--------------------------------------------
shall grant any rights or options to subscribe for, purchase or otherwise
acquire Common Shares of any class other than the Subject Securities, there
shall be determined the price per share for which Common Shares are issuable
upon the exercise of such rights or options, such determination to be made by
dividing (a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of such rights or options, by (b) the maximum number of Common
Shares issuable upon the exercise of such rights or options.
If the price per share so determined shall be less than the Trigger
Price (or, if a Pro Forma Adjusted Trigger Price shall be in effect, less than
such price) as of the date of such issue or sale, then the granting of such
rights or options shall be deemed to be an issue or sale for cash (as of the
date of the granting of such rights or options) of such maximum number of Common
Shares at the price per share so determined, provided that, if such rights or
options
4
<PAGE>
shall by their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration, if any, payable to the Company
upon the exercise thereof, the Pro Forma Adjusted Trigger Price per share shall,
forthwith upon any such increase becoming effective, be readjusted to reflect
the same, and provided, further, that upon the expiration of such rights or
options, if any thereof shall not have been exercised, the Pro Forma Adjusted
Trigger Price per share shall forthwith be readjusted and thereafter be the
price which it would have been had an adjustment been made on the basis that the
only Common Shares so issued or sold were those issued or sold upon the exercise
of such rights or options and that they were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised.
3.4. Grant of Rights or Options for Convertible Securities. In case the
-----------------------------------------------------
Company shall grant any rights or options to subscribe for, purchase or
otherwise acquire Convertible Securities other than the Subject Securities, such
Convertible Securities shall be deemed, for the purposes of subparagraph 3.2.
above, to have been issued or sold for the total amount received or receivable
by the Company as consideration for the granting of such rights or options plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights or options, provided that, upon the
expiration of such rights or options, if any thereof shall not have been
exercised, the Pro Forma Adjusted Trigger Price per share shall forthwith be
readjusted and thereafter be the price which it would have been had an
adjustment been made upon the basis that the only Convertible Securities so
issued or sold were those issued or sold upon the exercise of such rights or
options and that they were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such rights or options,
whether or not exercised.
3.5. Dilution in Case of Other Beneficial Interests or Securities. In
------------------------------------------------------------
case any shares of beneficial interest or other securities, other than Common
Shares of the Company, shall at any time be receivable upon the exercise of this
Right, and in case any additional shares of such beneficial interest or any
additional such securities (or any beneficial interest or other securities
convertible into or exchangeable for any such beneficial interest or securities)
shall be issued or sold for a consideration per share such as to dilute the
purchase rights evidenced by this Right, then and in each such case the Pro
Forma Adjusted Trigger Price per share shall forthwith be adjusted,
substantially in the manner provided for above in this Paragraph 3, so as to
protect the Holder of this Right against the effect of such dilution.
3.6. Expenses, etc., Deducted. In case any Common Shares or Convertible
------------------------
Securities or any rights or options to subscribe for, purchase or otherwise
acquire any Common Share or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Company therefor, after deducting any expenses incurred and any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale.
3.7. Determination of Consideration. In case any Common Shares or
------------------------------
Convertible Securities or any rights or options to subscribe for, purchase or
otherwise acquire any Common Shares or Convertible Securities shall be issued or
sold for a consideration other than cash (or a
5
<PAGE>
consideration which includes cash and other assets) then, for the purpose of
this Paragraph 3, the Board of Trustees of the Company shall promptly determine
the fair value of such consideration, and such Common Shares, Convertible
Securities, rights or options shall be deemed to have been issued or sold on the
date of such determination in good faith. Such value shall not be more than the
amount at which such consideration is recorded in the books of the Company for
accounting purposes except in the case of an acquisition accounted for on a
pooling of interest basis. In case any Common Shares or Convertible Securities
or any rights or options to subscribe for, purchase or otherwise acquire any
Common Shares or Convertible Securities shall be issued or sold together with
other stock or securities or other assets of the Company for a consideration
which covers both, the Board of Trustees of the Company shall promptly determine
in good faith what part of the consideration so received is to be deemed to be
the consideration for the issue or sale of such Common Shares or Convertible
Securities or such rights or options.
The Company covenants and agrees that, should any determination of
fair value of consideration or of allocation of consideration be made by the
Board of Trustees of the Company, pursuant to this subparagraph 3.7, it will,
not less than seven (7) days after any and each such determination, deliver to
the Holder of this Right a certificate signed by the President or a Vice
President and the Treasurer or an Assistant Treasurer of the Company reciting
such value as thus determined and setting forth the nature of the transaction
for which such determination was required to be made, the nature of any
consideration, other than cash, for which Common Shares, Convertible Securities,
rights or options have been or are to be issued, the basis for its valuation,
the number of Common Shares which have been or are to be issued, and a
description of any Convertible Securities, rights or options which have been or
are to be issued, including their number, amount and terms.
3.8. Record Date Deemed Issue Date. In case the Company shall take a
-----------------------------
record of the Holders of shares of any class for the purpose of entitling them
(a) to receive a dividend or a distribution payable in Common Shares or in
Convertible Securities, or (b) to subscribe for, purchase or otherwise acquire
Common Shares or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of the Common Shares issued or sold or
deemed to have been issued or sold upon the declaration of such dividend or the
making of such other distribution, or the date of the granting of such rights of
subscription, purchase or other acquisition, as the case may be.
3.9. Shares Considered Outstanding. The number of Common Shares
-----------------------------
outstanding at any given time shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of Common Shares, but shall exclude
shares in the treasury of the Company.
3.10. Duration of Pro Forma Adjusted Trigger Price. Following each
--------------------------------------------
computation or readjustment of a Pro Forma Adjusted Trigger Price as provided in
this Paragraph 3, the newly computed or adjusted Pro Forma Adjusted Trigger
Price shall remain in effect until a further computation or readjustment thereof
is required by this Paragraph 3.
4. ADJUSTMENT FOR DIVIDENDS IN OTHER SHARES OF BENEFICIAL INTEREST ,
PROPERTY, ETC.; RECLASSIFICATIONS, ETC. In case at any time or from time to
time after the Issuance Date the holders of the Common Shares of the Company of
any class (or any other shares of beneficial interest or other securities at the
time receivable upon the
6
<PAGE>
exercise of this Right) shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive:
(a) other or additional shares or other securities or property (other
than cash) by way of dividend;
(b) any cash paid or payable out of capital or paid-in surplus or
surplus created as a result of a revaluation of property by way of
dividend; or
(c) other or additional (or less) shares or other securities or
property (including cash) by way of stock-split, spin-off, split-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement;
(other than additional Common Shares issued to holders of Common Shares as a
stock dividend or stock-split, adjustments in respect of which shall be covered
by the provisions of Paragraph 3 hereof), then in each case the Holder of this
Right, upon the exercise hereof as provided in Paragraph 1 hereof, shall be
entitled to receive, in lieu of, or in addition to, as the case may be, the
shares theretofore receivable upon the exercise of this Right, the amount of
shares or other securities or property (including cash in the cases referred to
in clauses (b) and (c) above) which such Holder would hold on the date of such
exercise if, on the Issuance Date, he had been the holder of record of the
number of Common Shares of the Company called for on the face of this Right and
had thereafter, during the period from the Issuance Date to and including the
date of such exercise, retained such shares and/or all other or additional (or
less) stock or other securities or property (including cash in the cases
referred to in clauses (b) and (c) above) receivable by him as aforesaid during
such period, giving effect to all adjustments called for during such period by
Paragraphs 3 and 5 hereof.
5. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of
any reorganization of the Company (or any other trust, corporation, or other
entity the shares or other securities of which are at the time deliverable on
the exercise of this Right) after the date hereof, or in case, after such date,
the Company (or any such other trust, corporation or other entity) shall
consolidate with or merge into another trust, corporation, or other entity or
convey all or substantially all its assets to another trust, corporation or
other entity, then and in each such case the Holder of this Right, upon the
exercise hereof as provided in Paragraph 1 hereof, at any time after the
consummation of such reorganization, consolidation, merger or conveyance, shall
be entitled to receive the shares or other securities or property to which such
Holder would have been entitled upon such consummation if such Holder had
exercised this Right immediately prior thereto, all subject to further
adjustments as provided in Paragraphs 3 and 4 hereof; in each such case, the
terms of this Right shall be applicable to the shares or other securities or
property receivable upon the exercise of this Right after such consummation.
6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
declaration of trust or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Right, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect
7
<PAGE>
the rights of the Holder hereof against dilution or other impairment. Without
limiting the generality of the foregoing, the Company will not increase the par
value of any Common Shares receivable upon the exercise of this Right above the
amount payable therefor upon such exercise, and at all times will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable stock upon the exercise of this
Right.
7. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment in the number of Common Shares or other shares, securities or
property receivable on the exercise of this Right, at the request of the Holder
of this Right the Company at its expense shall promptly cause independent public
accountants of recognized standing, selected by the Company, to compute such
adjustment in accordance with the terms of this Right and prepare a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based, including a statement of (a) the consideration received or
to be received by the Company for any additional shares issued or sold or deemed
to have been issued or sold, (b) the number of Common Shares outstanding or
deemed to be outstanding and (c) the Pro Forma Adjusted Trigger Price. The
Company will forthwith mail a copy of each such certificate to the Holder of
this Right.
8. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the Holders of its Common
Shares (or other shares or securities at the time deliverable upon the
exercise of this Right) for the purpose of entitling or enabling them
to receive any dividend (other than a cash or stock dividend at the
same rate as the rate of the last cash or stock dividend theretofore
paid) or other distribution, or to exercise any preemptive right
pursuant to the Company's declaration of trust, or to receive any
right to subscribe for or purchase any shares of any class or any
other securities, or to receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the beneficial interests or capital stock of the Company, any
consolidation or merger of the Company with or into another trust,
corporation, or other entity or any conveyance of all or substantially
all of the assets of the Company to another trust, corporation or
other entity; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder of this Right a notice specifying, as the case may be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up is to
take place, and the times, if any is to be fixed, as of which the holders of
record of Common Shares (or such other shares or securities at the time
deliverable upon the exercise of this Right) shall be entitled to exchange their
Common Shares of any class (or such other shares or securities) for
8
<PAGE>
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up or (iii) the amount and character of the shares or other securities
proposed to be issued or granted, the date of such proposed issuance or grant
and the persons or class of persons to whom such shares or other securities are
to be offered, issued or granted. Such notice shall be mailed at least thirty
(30) days prior to the date therein specified.
9. RESERVATION OF SHARES, ETC., ISSUABLE ON EXERCISE OF RIGHTS. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Right and other similar Rights, such Common
Shares and other shares, securities and property as from time to time shall be
issuable upon the exercise of this Right and all other similar Rights at the
time outstanding.
10. REPLACEMENT OF RIGHT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Right and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement in an amount reasonably satisfactory to it, or (in the case
of mutilation) upon surrender and cancellation thereof, the Company will issue,
in lieu thereof, a new Right of like tenor.
11. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Right in the event of any default by the Company in its
performance of or compliance with any of the terms of this Right are not and
will not be adequate, and that the same may be specifically enforced.
12. NEGOTIABILITY, ETC. This Right is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Title to this Right may be transferred by endorsement (by the
Holder hereof executing the form of assignment at the end hereof
including guaranty of signature) and delivery in the same manner as in
the case of a negotiable instrument transferable by endorsement and
delivery.
(b) Any person in possession of this Right properly endorsed is
authorized to represent himself as absolute owner hereof and is
granted power to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each prior
taker or owner waives and renounces all of his equities or rights in
this Right in favor of every such bona fide purchaser, and every such
bona fide purchaser shall acquire title hereto and to all rights
represented hereby.
(c) Until this Right is transferred on the books of the Company, the
Company may treat the registered Holder of this Right as the absolute
owner hereof for all purposes without being affected by any notice to
the contrary.
13. SUBDIVISION OF RIGHTS. This Right (as well as any new Rights issued
pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the Holder hereof, at the principal office of the Company
for any number of new Rights of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of Common Shares of
the Company which may be subscribed for and purchased hereunder.
9
<PAGE>
14. REGISTRATION RIGHTS. The Holders of Rights shall have the
registration rights contained in the agreement attached as Exhibit A.
15. MAILING OF NOTICES, ETC. All notices, requests, claims, demands,
waivers and other communications hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand, when delivered by
courier, three days after being deposited in the mail (registered or certified
mail, postage prepaid, return receipt requested), or when received by facsimile
transmission upon receipt of a confirmed transmission report, as follows:
If to the Company: LaSalle Hotel Properties
220 East 42nd Street
New York, New York 10017
Tel: (212) 661-6161
Fax: (212) 687-8170
Attention: President
and if to the Holder of this Right to the address furnished to the Company in
writing by the last Holder of this Right who shall have furnished an address to
the Company in writing. Either the Company or the Holder of this Right, by
notice given to the other parties hereto in accordance with this Section 15, may
change the address or facsimile transmission number to which such notice or
other communications are to be sent to such party.
16. HEADINGS, ETC. The headings in this Right are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
17. CHANGE, WAIVER, ETC. Neither this Right nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
10
<PAGE>
18. GOVERNING LAW. This Right shall be construed and enforced in
accordance with the laws of the State of New York.
LASALLE HOTEL PROPERTIES
Dated: [date of issuance]
Attest:
- ---------------------------------------
11
<PAGE>
[To be signed only upon exercise of Right]
To LASALLE HOTEL PROPERTIES:
The undersigned, the Holder of the within Right, hereby irrevocably elects
to exercise the purchase right represented by such Right for, and to purchase
thereunder, ____________ Common Shares of ___________________ and herewith makes
payment of $____________ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to, ____________, whose
address is ________________________.
Dated:
---------------------------------------
(Signature must conform in all respects
to name of Holder as specified on the face
of the Right)
Address:
12
<PAGE>
Net Issue Election Notice
- -------------------------
To: ______________________________ Date: ___________________
The undersigned hereby elects under Paragraph 1 to surrender the right to
purchase _____________ Common Shares pursuant to this Right. The certificate(s)
for the shares issuable upon such net issue election shall be issued in the name
of the undersigned or as otherwise indicated below.
_________________________________________
Signature
_________________________________________
Name for Registration
_________________________________________
Mailing Address
13
<PAGE>
[To be signed only upon transfer of Right]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________ the right represented by the within Right to
purchase the ____________ Common Shares of LASALLE HOTEL PROPERTIES to which the
within Right relates, and appoints ________________________ attorney to transfer
said right on the books of ___________________ with full power of substitution
in the premises.
Dated:
---------------------------------
(Signature must conform in all respects
to name of Holder as specified on the face
of the Right)
Address:
In the presence of
- --------------------------------
14
<PAGE>
EXHIBIT 5.1
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
New York, NY 10048-0557
Facsimile: (212) 839-5599
Telephone: (212) 839-5300
April 1, 1998
LaSalle Hotel Properties
220 East 42nd Street
New York, New York 10017
Ladies and Gentlemen:
This opinion is furnished in connection with the registration, pursuant
to the Securities Act of 1933, as amended (the "Securities Act"), of 16,330,000
Common Shares of Beneficial Interest, par value $.01 per share (the "Shares"),
of LaSalle Hotel Properties, a Maryland real estate investment trust (the
"Company").
In connection with rendering this opinion, we have examined the
Declaration of Trust and the Bylaws of the Company; such records of the
corporate proceedings of the Company as we deemed appropriate; a registration
statement on Form S-11 under the Securities Act relating to the Shares, No.
333-45647, as amended (the "Registration Statement"), and the offering
prospectus contained therein (the "Prospectus") and such other certificates,
receipts, records and documents as we considered necessary for the purposes of
this opinion.
We are attorneys admitted to practice in the States of New York and
Maryland. We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America, the State of Maryland and the
State of New York.
<PAGE>
Based upon the foregoing, we are of the opinion that when the Shares have been
issued and paid for in accordance with the terms of the Prospectus, the Shares
will be legally issued, fully paid and nonassessable Shares.
The foregoing assumes that all requisite steps will be taken to comply
with the requirements of the Securities Act and applicable requirements of state
laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our firm under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Brown & Wood LLP
2
<PAGE>
EXHIBIT 10.1
[FORM OF]
----------------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
----------------------------------------
Dated as of ___________, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINED TERMS......................................... 1
ARTICLE II ORGANIZATIONAL MATTERS............................... 13
SECTION 2.1 ORGANIZATION.................................. 13
SECTION 2.2 NAME........................................... 13
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE.. 13
SECTION 2.4 TERM........................................... 13
ARTICLE III PURPOSE............................................. 13
SECTION 3.1 PURPOSE AND BUSINESS........................... 13
SECTION 3.2 POWERS......................................... 14
ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP
INTERESTS..................................................
SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS.......... 14
SECTION 4.2 ISSUANCES OF PARTNERSHIP INTERESTS............. 15
SECTION 4.3 NO PREEMPTIVE RIGHTS........................... 16
SECTION 4.4 OTHER CONTRIBUTION PROVISIONS.................. 16
SECTION 4.5 NO INTEREST ON CAPITAL......................... 17
ARTICLE V DISTRIBUTIONS......................................... 17
SECTION 5.1 REQUIREMENT AND CHARACTERIZATION OF
DISTRIBUTIONS..............................................
SECTION 5.2 AMOUNTS WITHHELD............................... 19
SECTION 5.3 DISTRIBUTIONS UPON LIQUIDATION................. 20
SECTION 5.4 REVISIONS TO REFLECT ISSUANCE OF PARTNERSHIP
INTERESTS...............................................
ARTICLE VI ALLOCATIONS.......................................... 20
SECTION 6.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES....... 20
SECTION 6.2 REVISIONS TO ALLOCATIONS TO REFLECT ISSUANCE OF
PARTNERSHIP INTERESTS...................................
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS............... 21
SECTION 7.1 MANAGEMENT..................................... 21
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP............. 25
SECTION 7.3 TITLE TO PARTNERSHIP ASSETS.................... 26
SECTION 7.4 REIMBURSEMENT OF THE GENERAL PARTNER
SECTION 7.5 OUTSIDE ACTIVITIES OF THE GENERAL
PARTNER; RELATIONSHIP OF SHARES TO
PARTNERSHIP UNITS; FUNDING DEBT 28
SECTION 7.6 TRANSACTIONS WITH AFFILIATES................... 29
SECTION 7.7 INDEMNIFICATION................................ 30
SECTION 7.8 LIABILITY OF THE GENERAL PARTNER............... 32
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<PAGE>
SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL
PARTNER.................................................
SECTION 7.10 RELIANCE BY THIRD PARTIES..................... 34
SECTION 7.11 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY... 35
SECTION 7.12 LOANS BY THIRD PARTIES........................ 36
SECTION 7.13 ACTIONS OF THE GENERAL PARTNER................ 36
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS......... 36
SECTION 8.1 LIMITATION OF LIABILITY........................ 36
SECTION 8.2 MANAGEMENT OF BUSINESS......................... 36
SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS......... 36
SECTION 8.4 RETURN OF CAPITAL.............................. 37
SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE
PARTNERSHIP.............................................
SECTION 8.6 REDEMPTION RIGHT............................... 38
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS............... 41
SECTION 9.1 RECORDS AND ACCOUNTING......................... 41
SECTION 9.2 FISCAL YEAR.................................... 41
SECTION 9.3 REPORTS........................................ 41
ARTICLE X TAX MATTERS........................................... 41
SECTION 10.1 PREPARATION OF TAX RETURNS.................... 41
SECTION 10.2 TAX ELECTIONS................................. 42
SECTION 10.3 TAX MATTERS PARTNER........................... 42
SECTION 10.4 ORGANIZATIONAL EXPENSES....................... 43
SECTION 10.5 WITHHOLDING................................... 43
ARTICLE XI TRANSFERS AND WITHDRAWALS............................ 44
SECTION 11.1 TRANSFER...................................... 44
SECTION 11.2 TRANSFERS OF PARTNERSHIP INTERESTS OF GENERAL
PARTNER.................................................
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.......... 45
SECTION 11.4 SUBSTITUTED LIMITED PARTNERS.................. 47
SECTION 11.5 ASSIGNEES..................................... 48
SECTION 11.6 GENERAL PROVISIONS............................ 48
ARTICLE XII ADMISSION OF PARTNERS............................... 50
SECTION 12.1 ADMISSION OF A SUCCESSOR GENERAL PARTNER...... 50
SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS...... 50
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF
LIMITED PARTNERSHIP.......................................
ARTICLE XIII DISSOLUTION AND LIQUIDATION........................ 51
SECTION 13.1 DISSOLUTION................................... 51
SECTION 13.2 WINDING UP.................................... 52
SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF
REGULATIONS............................................. 53
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<PAGE>
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION........ 54
SECTION 13.5 RIGHTS OF LIMITED PARTNERS.................... 54
SECTION 13.6 NOTICE OF DISSOLUTION......................... 54
SECTION 13.7 CANCELLATION OF CERTIFICATE OF LIMITED
PARTNERSHIP.............................................
SECTION 13.8 REASONABLE TIME FOR WINDING UP................ 54
SECTION 13.9 WAIVER OF PARTITION........................... 55
SECTION 13.10 LIABILITY OF LIQUIDATOR...................... 55
ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS........ 55
SECTION 14.1 AMENDMENTS.................................... 55
SECTION 14.2 MEETINGS OF THE PARTNERS...................... 56
ARTICLE XV GENERAL PROVISIONS................................... 57
SECTION 15.1 ADDRESSES AND NOTICE.......................... 57
SECTION 15.2 TITLES AND CAPTIONS........................... 57
SECTION 15.3 PRONOUNS AND PLURALS.......................... 57
SECTION 15.4 FURTHER ACTION................................ 58
SECTION 15.5 BINDING EFFECT................................ 58
SECTION 15.6 CREDITORS..................................... 58
SECTION 15.7 WAIVER........................................ 58
SECTION 15.8 COUNTERPARTS.................................. 58
SECTION 15.9 APPLICABLE LAW................................ 58
SECTION 15.10 INVALIDITY OF PROVISIONS..................... 58
SECTION 15.11 POWER OF ATTORNEY............................ 58
SECTION 15.12 ENTIRE AGREEMENT............................. 60
SECTION 15.13 NO RIGHTS AS SHAREHOLDERS.................... 60
SECTION 15.14 LIMITATION TO PRESERVE REIT STATUS........... 60
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EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
SPECIAL ALLOCATION RULES
EXHIBIT D
NOTICE OF REDEMPTION
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
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AGREEMENT OF LIMITED PARTNERSHIP
OF
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of _____________, 1998, is
entered into by and among LaSalle Hotel Properties, a Maryland real estate
investment trust, as the General Partners, and the Persons whose names are set
forth on Exhibit A hereto as Limited Partners, together with any other Persons
who become Partners in the Partnership as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree to form the
Partnership as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act, as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 12.2 hereof and who is shown as such on
the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii)
decreased by the items described in Regulations Sections 1.704-l(b)(2)
(ii)(d)(4), 1.704-l(b) (2)(ii)(d)(5) and 1.704-l(b)(2)(ii) (d) (6). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
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"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Exhibit B.
"Adjustment Date" has the meaning set forth in Section 4.2.B.
"Advisor" means LaSalle Hotel Advisors, Inc., a Maryland corporation, as
Advisor to the General Partner pursuant to the Advisory Agreement.
"Advisory Agreement" means the Agreement dated January ___, 1998 between
the Advisor and the General Partner.
"Affiliate" means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests or
(iv) any officer, director, general partner or trustee of such Person or any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreed Value" means (i) in the case of any Contributed Property
contributed to the Partnership as part of or in connection with the
Consolidation, the amount set forth on Exhibit E as the Agreed Value of such
Property; (ii) in the case of any other Contributed Property, the 704(c) Value
of such property as of the time of its contribution to the Partnership, reduced
by any liabilities either assumed by the Partnership upon such contribution or
to which such property is subject when contributed; and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the regulations thereunder.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have been
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.
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"Available Cash" means, with respect to any period for which such
calculation is being made:
(a) all cash revenues and funds received by the Partnership from whatever
source (excluding the proceeds of any Capital Contribution) plus the amount of
any reduction (including, without limitation, a reduction resulting because the
General Partner determines such amounts are no longer necessary) in reserves of
the Partnership, which reserves are referred to in clause (b)(iv) below;
(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made during such
period by the Partnership,
(ii) all cash expenditures (including capital expenditures) made by
the Partnership during such period,
(iii) investments in any entity (including loans made thereto) to the
extent that such investments are permitted under this Agreement and are not
otherwise described in clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves established during such
period which the General Partner determines is necessary or appropriate in
its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the partnership.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all
of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
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"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B.
"Capital Contribution" means, with respect to any Partner, any cash, cash
equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1 or 4.2.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts and (ii)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B, and to reflect changes, additions (including capital
improvements thereto) or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Cash Amount" means an amount of cash equal to the Value on the Valuation
Date of the Shares Amount.
"Certificate" means the Certificate of Limited Partnership relating to the
Partnership filed in the office of the Delaware Secretary of State, as amended
from time to time in accordance with the terms hereof and the Act.
"Class A" has the meaning set forth in Section 5.1.C.
"Class A Share" has the meaning set forth in Section 5.1.C.
"Class A Unit" means any Partnership Unit that is not specifically
designated by the General Partner as being of another specified class of
Partnership Units.
"Class B" has the meaning set forth in Section 5.1.C.
"Class B Share" has the meaning set forth in Section 5.1.C.
"Class B Unit" means a Partnership Unit that is specifically designated by
the General Partner as being a Class B Unit.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
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"Consent" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.2.
"Consent of the Outside Limited Partners" means the Consent of Limited
Partners (excluding for this purpose any Limited Partnership Interests held by
the General Partner, or any other Person of which the General Partner owns or
controls more than fifty percent (50%) of the voting interests and any Person
directly or indirectly owning or controlling more than fifty percent (50%) of
the outstanding voting interests of the General Partner) holding Percentage
Interests that are greater than fifty percent (50%) of the aggregate Percentage
Interest of all Limited Partners who are not excluded for the purposes hereof.
"Consolidation" means (i) the transactions whereby the Partnership will
acquire interests in certain hotel properties owned by the Target Entities by
way of merger or exchange of a Target Entity's interest for Operating
Partnership Units.
"Contributed Property" means each property or other asset contributed to
the Partnership, in such form as may be permitted by the Act, but excluding cash
contributed or deemed contributed to the Partnership. Once the Carrying Value
of a Contributed Property is adjusted pursuant to Exhibit B, such property shall
no longer constitute a Contributed Property for purposes of Exhibit B, but shall
be deemed an Adjusted Property for such purposes.
"Conversion Factor" means 1.0; provided that, if the General Partner (i)
declares or pays a dividend on its outstanding Shares in Shares or makes a
distribution to all holders of its outstanding Shares in Shares, (ii) subdivides
its outstanding Shares or (iii) combines its outstanding Shares into a smaller
number of Shares, the Conversion Factor shall be adjusted by multiplying the
Conversion Factor by a fraction, the numerator of which shall be the number of
Shares issued and outstanding on the record date for such dividend,
distribution, subdivision or combination (assuming for such purposes that such
dividend, distribution, subdivision or combination has occurred as of such time)
and the denominator of which shall be the actual number of Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, subdivision or combination; and provided further that if
an entity shall cease to be the General Partner (the "Predecessor General
Partner") and another entity shall become the General Partner (the "Successor
General Partner"), the Conversion Factor shall be adjusted by multiplying the
Conversion Factor by a fraction, the numerator of which is the Value of one
Share of the Predecessor General Partner, determined as of the date when the
Successor General Partner becomes the general partner of the Partnership, and
the denominator of which is the Value of one Share of the Successor General
Partner, determined as of that same date. (For purposes of the second proviso
in the preceding sentence, if any shareholders of the Predecessor General
Partner will receive consideration in connection with the transaction in which
the Successor General Partner becomes the General Partner, the numerator in the
fraction described above for determining the adjustment to the Conversion Factor
(that is, the Value of one Share of the Predecessor General Partner) shall be
the sum of the greatest amount of cash
5
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and the fair market value (as determined in good faith by the General Partner)
of any securities and other consideration that the holder of one Share in the
Predecessor General Partner could have received in such transaction (determined
without regard to any provisions governing fractional shares).) Any adjustment
to the Conversion Factor shall become effective immediately after the effective
date of the event retroactive to the record date, if any, for the event giving
rise thereto, it being intended that (x) adjustments to the Conversion Factor
are to be made to avoid unintended dilution or anti-dilution as a result of
transactions in which Shares are issued, redeemed or exchanged without a
corresponding issuance, redemption or exchange of Partnership Units and (y) if a
Specified Redemption Date shall fall between the record date and the effective
date of any event of the type described above, that the Conversion Factor
applicable to such redemption shall be adjusted to take into account such event.
"Convertible Funding Debt" has the meaning set forth in Section 7.5.F.
"Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (iv) obligations of such Person
incurred in connection with entering into a lease which, in accordance with
generally accepted accounting principles, should be capitalized.
"Declaration of Trust" means the Declaration of Trust of LaSalle Hotel
Properties filed in the State of Maryland on January 15, 1998, as amended or
restated from time to time.
"Deemed Partnership Interest Value" means, as of any date with respect to
any class of Partnership Interests, the Deemed Value of the Partnership Interest
of such class multiplied by the applicable Partner's Percentage Interest of such
class.
"Deemed Value of the Partnership Interest" means, as of any date with
respect to any class of Partnership Interests, (a) if the common shares of
beneficial interest (or other comparable equity interests) of the General
Partner are Publicly Traded (i) the total number of shares of beneficial
interest (or other comparable equity interest) of the General Partner
corresponding to such class of Partnership Interest (as provided for in Section
4.2.B) issued and outstanding as of the close of business on such date
(excluding any treasury shares) multiplied by the Value of a share of such
beneficial interest (or other comparable equity interest) on such date divided
by (ii) the Percentage Interest of the General Partner in such class of
Partnership Interests on such date, and (b) otherwise, the aggregate Value of
such class of Partnership Interests determined as set forth in the fourth and
fifth sentences of the definition of Value.
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"Depreciation" means, for each fiscal year, an amount equal to the federal
income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Distribution Period" has the meaning set forth in Section 5.1.C.
"Effective Date" means the date of the closing of the Consolidation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means an "employee benefit plan" as that term is defined in 29
U.S.C. Section 1002(3), and which is not exempt from regulation under ERISA by
virtue of 29 U.S.C. Section 1003(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Funding Debt" means the incurrence of any Debt by or on behalf of the
General Partner Entity for the purpose of providing funds to the Partnership.
"General Partner" means LaSalle Hotel Properties or its successor as
general partner.
"General Partnership Interest" means a Partnership Interest held by a
General Partner that is a general partnership interest. A General Partnership
Interest may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person, such natural
Person's spouse, parents, descendants, nephews, nieces, brothers, and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating such Partner incompetent to manage his or her Person or estate,
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter, (iii)
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as to any partnership or limited liability company which is a Partner, the
dissolution and commencement of winding up of the partnership or limited
liability company, (iv) as to any estate which is a Partner, the distribution by
the fiduciary of the estate's entire interest in the Partnership, (v) as to any
trustee of a trust which is a Partner, the termination of the trust (but not the
substitution of a new trustee) or (vi) as to any Partner, the bankruptcy of such
Partner. For purposes of this definition, bankruptcy of a Partner shall be
deemed to have occurred when (a) the Partner commences a voluntary proceeding
seeking liquidation, reorganization or other relief under any bankruptcy,
insolvency or other similar law now or hereafter in effect, (b) the Partner is
adjudged as bankrupt or insolvent, or a final and nonappealable order for relief
under any bankruptcy, insolvency or similar law now or hereafter in effect has
been entered against the Partner, (c) the Partner executes and delivers a
general assignment for the benefit of the Partner's creditors, (d) the Partner
files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver of liquidator has not been vacated or stayed within ninety
(90) days of such appointment or (h) an appointment referred to in clause (g) is
not vacated within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by reason of
its status as (A) the General Partner, (B) a Limited Partner, or (C) a trustee,
director or officer of the Partnership, or the General Partner and (ii) such
other Persons (including Affiliates of the General Partner, a Limited Partner or
the Partnership) as the General Partner may designate from time to time (whether
before or after the event giving rise to potential liability), in its sole and
absolute discretion.
"Limited Partner" means the General Partner, in its capacity as a Limited
Partner in the Partnership, or any Person named as a Limited Partner in Exhibit
A, as such Exhibit may be amended from time to time, or any Substituted Limited
Partner or Additional Limited Partner, in such Person's capacity as a Limited
Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Limited Partners and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partnership Interest may be
expressed as a number of Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1.
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"Liquidator" has the meaning set forth in Section 13.2.A.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Income is subjected to the special allocation
rules in Exhibit C, Net Income or the resulting Net Loss, whichever the case may
be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to the special allocation
rules in Exhibit C, Net Loss or the resulting Net Income, whichever the case may
be, shall be recomputed without regard to such item.
"New Securities" means (i) any rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase shares of
beneficial interest (or other comparable equity interest) of the General
Partner, excluding grants under any Share Option Plan, or (ii) any Debt issued
by the General Partner that provides any of the rights described in clause (i).
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-l(a)(2).
"Notice of Redemption" means a Notice of Redemption substantially in the
form of Exhibit D.
"Partner" means the General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
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"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section
1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined
in accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act upon the
terms and conditions set forth in this Agreement, or any successor to such
limited partnership.
"Partnership Interest" means a Limited Partnership Interest or the General
Partnership Interest and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Partnership Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by the General
Partner either (i) for the distribution of Available Cash pursuant to Section
5.1 hereof, which record date shall be the same as the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such distribution, or (ii) if applicable, for determining the
Partners entitled to vote on or consent to any proposed action for which the
consent or approval of the Partners is sought pursuant to Section 14.2 hereof.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Partners issued pursuant to Sections 4.1 and 4.2, and includes
Class A Units, Class B Units and any other classes or series of Partnership
Units established after the date hereof. The number of Partnership Units
outstanding and the Percentage Interests in the Partnership represented by such
Partnership Units are set forth in Exhibit A, as such Exhibit may be amended
from time to time.
"Partnership Year" means the fiscal year of the Partnership, which shall be
the calendar year.
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"Percentage Interest" means, as to a Partner holding a class of Partnership
Interests, its interest in such class, determined by dividing the Partnership
Units of such class owned by such Partner by the total number of Partnership
Units of such class then outstanding as specified in Exhibit A, as such exhibit
may be amended from time to time, multiplied by the aggregate Percentage
Interest allocable to such class of Partnership Interests. If the Partnership
shall at any time have outstanding more than one class of Partnership Interests,
the Percentage Interest attributable to each class of Partnership Interests
shall be determined as set forth in Section 4.2.B.
"Person" means a natural person, partnership (whether general or limited),
trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"Predecessor Entity" has the meaning set forth in the definition of
"Conversion Factor" herein.
"Publicly Traded" means listed or admitted to trading on the New York Stock
Exchange, the American Stock Exchange or another national securities exchange or
designated for quotation on the NASDAQ National Market, or any successor to any
of the foregoing.
"Qualified REIT Subsidiary" means any Subsidiary of the General Partner
that is a "qualified REIT subsidiary" within the meaning of Section 856(i) of
the Code.
"Qualified Transferee" means an "Accredited Investor" as defined in Rule
501 promulgated under the Securities Act.
"Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.6.A.
"Redemption Amount" means either the Cash Amount or the Shares Amount, as
determined by the General Partner, in its sole and absolute discretion, provided
that if the Shares are not Publicly Traded at the time a Redeeming Partner
exercises its Redemption Right, the Redemption Amount shall be paid only in the
form of the Cash Amount unless the Redeeming Partner, in its sole and absolute
discretion, consents to payment of the Redemption Amount in the form of the
Shares Amount. A Redeeming Partner shall have no right, without the General
Partner's consent, in its sole and absolute discretion, to receive the
Redemption Amount in the form of the Shares Amount.
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"Redemption Right" has the meaning set forth in Section 8.6.A.
"Regulation" or "Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the Code.
"REIT Requirements" has the meaning set forth in Section 5.1.A.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.l(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"Safe Harbor" has the meaning set forth in Section 11.6.F.
"Securities Act" means the Securities Act of 1933, as amended.
"704(c) Value" of any Contributed Property means the fair market value of
such property at the time of contribution as determined by the General Partner
using such reasonable method of valuation as they may adopt, provided, however,
subject to Exhibit B, the General Partner shall, in their sole and absolute
discretion, use such method as they deem reasonable and appropriate to allocate
the aggregate of the 704(c) Value of Contributed Properties in a single or
integrated transaction among each separate property on a basis proportional to
its fair market values. The 704(c) Values of the Contributed Properties
contributed to the Partnership as part of or in connection with the
Consolidation are set forth on Exhibit E.
"Share" means a share of beneficial interest (or other comparable equity
interest) of the General Partner. Shares may be issued in one or more classes
or series in accordance with the terms of the Declaration of Trust (or, if the
General Partner is not the General Partner, the organizational documents of the
General Partner). If there is more than one class or series of Shares, the term
"Shares" shall, as the context requires, be deemed to refer to the class or
series of Shares that correspond to the class or series of Partnership Interests
for which the reference to Shares is made. When used with reference to Class A
Units, the term "Shares" refers to common shares of beneficial interest (or
other comparable equity interest) of the General Partner.
"Shares Amount" means a number of Shares equal to the product of the number
of Partnership Units offered for redemption by a Redeeming Partner times the
Conversion Factor, provided that, if the General Partner issues to all holders
of Shares rights, options, warrants or convertible or exchangeable securities
entitling such holders to subscribe for or purchase Shares
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or any other securities or property (collectively, the "rights"), then the
Shares Amount shall also include such rights that a holder of that number of
Shares would be entitled to receive.
"Share Option Plan" means any equity incentive plan of the General Partner,
the Partnership and/or any Affiliate of the Partnership.
"Specified Redemption Date" means the tenth Business Day after receipt by
the General Partner of a Notice of Redemption; provided that, if the Shares are
not Publicly Traded, the Specified Redemption Date means the thirtieth Business
Day after receipt by the General Partner of a Notice of Redemption.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, trust, partnership or joint venture, or other entity of which
a majority of (i) the voting power of the voting equity securities or (ii) the
outstanding equity interests is owned, directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4.
"Successor Entity" has the meaning set forth in the definition of
"Conversion Factor" herein.
"Target Entities" shall mean the limited partnership, corporations, limited
liability companies listed on Exhibit A.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership for cash or a related
series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership for
cash.
"Termination Transaction" has the meaning set forth in Section 11.2.B.
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under Exhibit B) as of such date, over
(ii) the Carrying Value of such property (prior to any adjustment to be made
pursuant to Exhibit B) as of such date.
"Unrealized Loss" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the Carrying Value
of such property (prior to any adjustment to be made pursuant to Exhibit B) as
of such date, over (ii) the fair market value of such property (as determined
under Exhibit B) as of such date.
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"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"Value" means, with respect to any outstanding Shares of the General
Partner that are Publicly Traded, the average of the daily market price for the
ten consecutive trading days immediately preceding the date with respect to
which value must be determined. The market price for each such trading day
shall be the closing price, regular way, on such day, or if no such sale takes
place on such day, the average of the closing bid and asked prices on such day.
If the outstanding Shares of the General Partner are Publicly Traded and the
Shares Amount includes rights that a holder of Shares would be entitled to
receive, then the Value of such rights shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. If the
Shares of the General Partner are not Publicly Traded, the Value of the Shares
Amount per Partnership Unit offered for redemption (which will be the Cash
Amount per Partnership Unit offered for redemption payable pursuant to Section
8.6.A) means the amount that a holder of one Partnership Unit would receive if
each of the assets of the Partnership were to be sold for its fair market value
on the Specified Redemption Date, the Partnership were to pay all of its
outstanding liabilities, and the remaining proceeds were to be distributed to
the Partners in accordance with the terms of this Agreement. Such Value shall
be determined by the General Partner, acting in good faith and based upon a
commercially reasonable estimate of the amount that would be realized by the
Partnership if each asset of the Partnership (and each asset of each
partnership, limited liability company, trust, joint venture or other entity in
which the Partnership owns a direct or indirect interest) were sold to an
unrelated purchaser in an arms' length transaction where neither the purchaser
nor the seller were under economic compulsion to enter into the transaction
(without regard to any discount in value as a result of the Partnership's
minority interest in any property or any illiquidity of the Partnership's
interest in any property). In connection with determining the Deemed Value of
the Partnership Interest for purposes of determining the number of additional
Partnership Units issuable upon a Capital Contribution funded by an underwritten
public offering or an arm's length private placement of shares of beneficial
interest (or other comparable equity interest) of the General Partner, the Value
of such shares shall be the public offering or arm's length private placement
price per share of such class of beneficial interest (or other comparable equity
interest) sold.
ARTICLE II
ORGANIZATIONAL MATTERS
SECTION 2.1 ORGANIZATION
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided
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herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.
SECTION 2.2 NAME
The name of the Partnership is LaSalle Hotel Operating Partnership, L.P.
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of any of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in their sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE
The address of the registered office of the Partnership in the State of
Delaware shall be located at Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be The Corporation Trust Company. The principal office
of the Partnership shall be 220 East 42nd Street, New York, New York 10017, or
such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
SECTION 2.4 TERM
The term of the Partnership shall commence on ____________, 1997 and shall
continue until December 31, 2095, unless it is dissolved sooner pursuant to the
provisions of Article XIII or as otherwise provided by law.
ARTICLE III
PURPOSE
SECTION 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act; provided, however, that such permit
the General Partner at all times to be classified
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as a REIT, unless the General Partner ceases to qualify or is not qualified as a
REIT for any reason or reasons not related to the business conducted by the
Partnership, (ii) to enter into any corporation, partnership, joint venture,
trust, limited liability company or other similar arrangement to engage in any
of the foregoing or the ownership of interests in any entity engaged, directly
or indirectly, in any of the foregoing and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, the Partners
acknowledge that the status of the General Partner as a REIT inures to the
benefit of all the Partners and not solely to the General Partner or its
Affiliates.
SECTION 3.2 POWERS
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership, including, without limitation, full
power and authority, directly or through its ownership interest in other
entities, to enter into, perform and carry out contracts of any kind, borrow
money and issue evidences of indebtedness, whether or not secured by mortgage,
deed of trust, pledge or other lien, acquire, own, manage, improve and develop
real property, and lease, sell, transfer and dispose of real property, provided,
however, that the Partnership shall not take, or refrain from taking, any action
which, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the General Partner to
continue to qualify as a REIT, (ii) could subject the General Partner to any
additional taxes under Section 857 or Section 4981 of the Code or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
At the time of the execution of this Agreement, the Partners shall make or
shall have made the Capital Contributions as set forth in Exhibit A. The
Partners shall own Partnership Units in the amounts set forth in Exhibit A and
shall have a Percentage Interest in the Partnership as set forth in Exhibit A,
which Percentage Interest shall be adjusted in Exhibit A from time to time by
the General Partner to the extent necessary to reflect accurately redemptions,
Capital Contributions, the issuance of additional Partnership Units or similar
events having an effect on a Partner's Percentage Interest. To the extent the
Partnership is acquiring any property by the
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merger of any other Person into the Partnership, Persons who receive Partnership
Interests in exchange for their interests in the Person merging into the
Partnership shall become Partners and shall be deemed to have made Capital
Contributions as provided in the applicable merger agreement and as set forth in
Exhibit A. A number of Partnership Units held by each of the General Partner
equal to one percent (1%) of all outstanding Partnership Units (as of the
closing date of the Consolidation) shall be deemed to be the General Partner
Partnership Units and shall be the General Partnership Interest of such General
Partner. All other Partnership Units held by the General Partner shall be
deemed to be Limited Partnership Interests and shall be held by the General
Partner in their capacity as Limited Partners in the Partnership. Except as
provided in Sections 7.5 and 10.5 hereof, the Partners shall have no obligation
to make any additional Capital Contributions or provide any additional funding
to the Partnership (whether in the form of loans, repayments of loans or
otherwise). No Partner shall have any obligation to restore any deficit that
may exist in its Capital Account, either upon a liquidation of the Partnership
or otherwise.
SECTION 4.2 ISSUANCES OF PARTNERSHIP INTERESTS
A. General. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes, or in one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined, subject to applicable Delaware law, by the General Partner in its
sole and absolute discretion, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests, (ii) the right of each such class or
series of Partnership Interests to share in Partnership distributions and (iii)
the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership, provided that, no such
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless either (a) the Partnership Interests are issued in connection
with the grant, award or issuance of Shares or other equity interests in the
General Partner having designations, preferences and other rights such that the
economic interests attributable to such Shares or other equity interests are
substantially similar to the designations, preferences and other rights (except
voting rights) of the Partnership Interests issued to the General Partner in
accordance with this Section 4.2.A or (b) the additional Partnership Interests
are issued to all Partners holding Partnership Interests in the same class in
proportion to their respective Percentage Interests in such class. If the
Partnership issues Partnership Interests pursuant to this Section 4.2.A, the
General Partner shall make such revisions to this Agreement (including but not
limited to the revisions described in Section 5.4, Section 6.2 and Section 8.6)
as it deems necessary to reflect the issuance of such Partnership Interests.
B. Percentage Interest Adjustments in the Case of Capital Contributions
for Partnership Units. Upon the acceptance of additional Capital Contributions
in exchange for
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Partnership Units and if the Partnership shall have outstanding more than one
class of Partnership Interests, the Percentage Interest related thereto shall be
equal to a fraction, the numerator of which is equal to the amount of cash, if
any, plus the Agreed Value of Contributed Property, if any, contributed with
respect to such additional Partnership Units and the denominator of which is
equal to the sum of (i) the Deemed Value of the Partnership Interests for all
outstanding classes (computed as of the Business Day immediately preceding the
date on which the additional Capital Contributions are made (an "Adjustment
Date")) plus (ii) the aggregate amount of additional Capital Contributions
contributed to the Partnership on such Adjustment Date in respect of such
additional Partnership Units. The Percentage Interest of each other Partner
holding Partnership Interests not making a full pro rata Capital Contribution
shall be adjusted to a fraction the numerator of which is equal to the sum of
(i) the Deemed Partnership Interest Value of such Limited Partner (computed as
of the Business Day immediately preceding the Adjustment Date) plus (ii) the
amount of additional Capital Contributions (such amount being equal to the
amount of cash, if any, plus the Agreed Value of Contributed Property, if any,
so contributed), if any, made by such Partner to the Partnership in respect of
such Partnership Interest as of such Adjustment Date and the denominator of
which is equal to the sum of (i) the Deemed Value of the Partnership Interests
of all outstanding classes (computed as of the Business Day immediately
preceding such Adjustment Date) plus (ii) the aggregate amount of the additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Interests. For purposes of calculating a
Partner's Percentage Interest pursuant to this Section 4.2.B, cash Capital
Contributions by the General Partner will be deemed to equal the cash
contributed by such General Partner plus (a) in the case of cash contributions
funded by an offering of any equity interests in or other securities of the
General Partner, the offering costs attributable to the cash contributed to the
Partnership, and (b) in the case of Partnership Units issued pursuant to Section
7.5.E, an amount equal to the difference between the Value of the Shares sold
pursuant to any Share Option Plan and the net proceeds of such sale.
C. Classes of Partnership Units. From and after the Effective Date,
subject to Section 4.2.A above, the Partnership shall have two classes of
Partnership Units entitled "Class A Units" and "Class B Units." Either Class A
Units or Class B Units, at the election of the General Partner, in its sole and
absolute discretion, may be issued to newly admitted Partners in exchange for
the contribution by such Partners of cash, real estate partnership interests,
stock, notes or other assets or consideration; provided, that all Partnership
Units issued to Partners in connection with the Consolidation shall be Class A
Units; and, provided further, that any Partnership Unit that is not specifically
designated by the General Partner as being of a particular class shall be deemed
to be a Class A Unit. Each Class B Unit shall be converted automatically into a
Class A Unit on the day immediately following the Partnership Record Date for
the Distribution Period (as defined in Section 5.1.C) in which such Class B Unit
was issued, without the requirement for any action by either the Partnership or
the Partner holding the Class B Unit.
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SECTION 4.3 NO PREEMPTIVE RIGHTS
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
SECTION 4.4 OTHER CONTRIBUTION PROVISIONS
If any Partner is admitted to the Partnership and is given a Capital
Account in exchange for services rendered to the Partnership, such transaction
shall be treated by the Partnership and the affected Partner as if the
Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership.
SECTION 4.5 NO INTEREST ON CAPITAL
No Partner shall be entitled to interest on its Capital Contributions or
its Capital Account.
ARTICLE V
DISTRIBUTIONS
SECTION 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS
A. General. The General Partner shall distribute at least quarterly an
amount equal to one hundred percent (100%) of Available Cash generated by the
Partnership during such quarter or shorter period to the Partners who are
Partners on the Partnership Record Date with respect to such quarter or shorter
period as provided in Sections 5.1.B, 5.1.C and 5.1.D. Notwithstanding anything
to the contrary contained herein, in no event may a Partner receive a
distribution of Available Cash with respect to a Partnership Unit for a quarter
or shorter period if such Partner is entitled to receive a distribution with
respect to a Share for which such Partnership Unit has been redeemed or
exchanged. Unless otherwise expressly provided for herein or in an agreement at
the time a new class of Partnership Interests is created in accordance with
Article IV hereof, no Partnership Interest shall be entitled to a distribution
in preference to any other Partnership Interest. The General Partner shall make
such reasonable efforts, as determined by them in their sole and absolute
discretion and consistent with the qualification of the General Partner as a
REIT, to distribute Available Cash (a) to Limited Partners so as to preclude any
such distribution or portion thereof from being treated as part of a sale of
property of the Partnership by a Limited Partner under Section 707 of the Code
or the Regulations thereunder; provided that, the General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of any distribution to a Limited Partner being so
treated, and (b) to the General Partner
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in an amount sufficient to enable the General Partner to pay shareholder
dividends that will (1) satisfy the requirements for qualification as a REIT
under the Code and the Regulations (the "REIT Requirements") of, and (2) avoid
any federal income or excise tax liability for, the General Partner.
B. Method. (i) Each holder of Partnership Interests that is entitled to
any preference in distribution shall be entitled to a distribution in accordance
with the rights of any such class of Partnership Interests (and, within such
class, pro rata in proportion to the respective Percentage Interests on such
Partnership Record Date); and
(ii) To the extent there is Available Cash remaining after the payment of
any preference in distribution in accordance with the foregoing clause (i), with
respect to Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class in accordance with the terms of such
class (and, within each such class, pro rata in proportion to the respective
Percentage Interests on such Partnership Record Date).
C. Distributions When Class B Units Are Outstanding. If for any quarter
or shorter period with respect to which a distribution is to be made (a
"Distribution Period") Class B Units are outstanding on the Partnership Record
Date for such Distribution Period, the General Partner shall allocate the
Available Cash with respect to such Distribution Period available for
distribution with respect to the Class A Units and Class B Units collectively
between the Partners who are holders of Class A Units ("Class A") and the
Partners who are holders of Class B Units ("Class B") as follows:
(1) Class A shall receive that portion of the Available
Cash (the "Class A Share") determined by multiplying the amount
of Available Cash by the following fraction:
A x Y
_______________
(A x Y)+(B x X)
(2) Class B shall receive that portion of the Available Cash
(the "Class B Share") determined by multiplying the amount of
Available Cash by the following fraction:
B x X
_______________
(A x Y)+(B x X)
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(3) For purposes of the foregoing formulas (i) "A" equals
the number of Class A Units outstanding on the Partnership Record
Date for such Distribution Period; (ii) "B" equals the number of
Class B Units outstanding on the Partnership Record Date for such
Distribution Period; (iii) "Y" equals the number of days in the
Distribution Period; and (iv) "X" equals the number of days in
the Distribution Period for which the Class B Units were issued
and outstanding.
The Class A Share shall be distributed among Partners holding Class A Units
on the Partnership Record Date for the Distribution Period in accordance with
the number of Class A Units held by each Partner on such Partnership Record
Date; provided that in no event may a Partner receive a distribution of
Available Cash with respect to a Class A Unit if a Partner is entitled to
receive a distribution out of such Available Cash with respect to a Share for
which such Class A Unit has been redeemed or exchanged. The Class B Shares
shall be distributed among the Partners holding Class B Units on the Partnership
Record Date for the Distribution Period in accordance with the number of Class B
Units held by each Partner on such Partnership Record Date. In no event shall
any Class B Units be entitled to receive any distribution of Available Cash for
any Distribution Period ending prior to the date on which such Class B Units are
issued.
D. Distributions When Class B Units Have Been Issued on Different Dates.
If Class B Units which have been issued on different dates are outstanding on
the Partnership Record Date for any Distribution Period, then the Class B Units
issued on each particular date shall be treated as a separate series of
Partnership Units for purposes of making the allocation of Available Cash for
such Distribution Period among the holders of Partnership Units (and the formula
for making such allocation, and the definitions of variables used therein, shall
be modified accordingly). Thus, for example, if two series of Class B Units are
outstanding on the Partnership Record Date for any Distribution Period, the
allocation formula for each series, "Series B1" and "Series B2" would be as
follows:
(1) Series B1 shall receive that portion of the Available
Cash determined by multiplying the amount of Available Cash by
the following fractions:
B1 x X1
___________________________
(A x Y)+(B1 x X1)+(B2 x X2)
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(2) Series B2 shall receive that portion of the Available
Cash determined by multiplying the amount of Available Cash by
the following fractions:
B2 x X2
___________________________
(A x Y)+(B1 x X1)+(B2 x X2)
(3) For purposes of the foregoing formulas the definitions
set forth in Section 5.1.C.3 remain the same except that (i) "B1"
equals the number of Partnership Units in Series B1 outstanding
on the Partnership Record Date for such Distribution Period; (ii)
"B2" equals the number of Partnership Units in Series B2
outstanding on the Partnership Record Date for such Distribution
Period;
(iii) "X1" equals the number of days in the Distribution Period for
which the Partnership Units in Series B1 were issued and outstanding,
and (iv) "X2" equals the number of days in the Distribution Period for
which the Partnership Units in Series B2 were issued and outstanding.
E. Minimum Distributions if Shares Not Publicly Traded. In addition (and
without regard to the amount of Available Cash), if the Shares of the General
Partner are not Publicly Traded, the General Partner shall make cash
distributions with respect to the Class A Units at least annually for each
taxable year of the Partnership beginning prior to the fifteenth (15th)
anniversary of the Effective Date in an aggregate amount with respect to each
such taxable year at least equal to 95% of the Partnership's taxable income for
such year allocable to the Class A Units, with such distributions to be made not
later than 60 days after the end of such year.
SECTION 5.2 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any state or
local tax law and Section 10.5 with respect to any allocation, payment or
distribution to the General Partner, the Limited Partners or Assignees shall be
treated as amounts distributed to the General Partner, Limited Partners or
Assignees pursuant to Section 5.1 for all purposes under this Agreement.
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SECTION 5.3 DISTRIBUTIONS UPON LIQUIDATION
Proceeds from a Terminating Capital Transaction shall be distributed to the
Partners, in accordance with Section 13.2.
SECTION 5.4 REVISIONS TO REFLECT ISSUANCE OF PARTNERSHIP INTERESTS
If the Partnership issues Partnership Interests to the General Partner or
any Additional Limited Partner pursuant to Article IV hereof, the General
Partner shall make such revisions to this Article V and Exhibit A as it deems
necessary to reflect the issuance of such additional Partnership Interests
without the requirements for any other consents or approvals.
ARTICLE VI
ALLOCATIONS
SECTION 6.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Income shall be allocated (i) first, to the
General Partner to the extent that Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1.B exceed Net Income
previously allocated to the General Partner pursuant to this clause (i) of
Section 6.1.A, (ii) second, to the holders of any Partnership Interests that are
entitled to any preference in distribution in accordance with the rights of any
such class of Partnership Interests until each such Partnership Interest has
been allocated, on a cumulative basis pursuant to this clause (ii), Net Income
equal to the amount of distributions received which are attributable to the
preference of such class of Partnership Interests (and, within such class, pro
rata in proportion to the respective Percentage Interests as of the last day of
the period for which such allocation is being made) and (iii) third, with
respect to Partnership Interests that are not entitled to any preference in the
allocation of Net Income, pro rata to each such class in accordance with the
terms of such class (and, within such class, pro rata in proportion to the
respective Percentage Interests as of the last day of the period for which such
allocation is being made).
B. Net Losses. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Losses shall be allocated (i) first, to the
holders of any Partnership Interests that are entitled to any preference in
distribution in accordance with the rights of any such class of
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Partnership Interests to the extent that any prior allocations of Net Income to
such class of Partnership Interests pursuant to Section 6.1.A(ii) exceed, on a
cumulative basis, distributions with respect to such Partnership Interests
pursuant to clause (i) of Section 5.1.B (and, within such class, pro rata in
proportion to the respective Percentage Interests as of the last day of the
period for which such allocation is being made) and (ii) second, with respect to
classes of Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class in accordance with the terms of such
class (and, within such class, pro rata in proportion to the respective
Percentage Interests as of the last day of the period for which such allocation
is being made); provided that Net Losses shall not be allocated to any Limited
Partner pursuant to this Section 6.1.B to the extent that such allocation would
cause such Limited Partner to have an Adjusted Capital Account Deficit (or
increase any existing Adjusted Capital Account Deficit) at the end of such
taxable year (or portion thereof). All Net Losses in excess of the limitations
set forth in this Section 6.1 B shall be allocated to the General Partner.
C. Allocation of Nonrecourse Debt. For purposes of Regulation Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the Partnership
in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the
total amount of Nonrecourse Built-in Gain shall be allocated among the Partners
in accordance with their respective Percentage Interests.
D. Recapture Income. Any gain allocated to the Partners upon the sale or
other taxable disposition of any Partnership asset shall, to the extent possible
after taking into account other required allocations of gain pursuant to Exhibit
C, be characterized as Recapture Income in the same proportions and to the same
extent as such Partners have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as Recapture Income.
SECTION 6.2 REVISIONS TO ALLOCATIONS TO REFLECT ISSUANCE OF PARTNERSHIP
INTERESTS
If the Partnership issues Partnership Interests to the General Partner or
any Additional Limited Partner pursuant to Article IV hereof, the General
Partner shall make such revisions to this Article VI and Exhibit A as it deems
necessary to reflect the terms of the issuance of such Partnership Interests,
including making preferential allocations to classes of Partnership Interests
that are entitled thereto. Such revisions shall not require the consent or
approval of any other Partner.
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ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
SECTION 7.1 MANAGEMENT
A. Powers of General Partner. Except as otherwise expressly provided in
this Agreement, all management powers over the business and affairs of the
Partnership are and shall be exclusively vested in the General Partner, and no
Limited Partner shall have any right to participate in or exercise control or
management power over the business and affairs of the Partnership. The General
Partner may not be removed by the Limited Partners with or without cause. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner, subject to
Section 7.11, shall have full power and authority to do all things deemed
necessary or desirable by it to conduct the business of the Partnership, to
exercise all powers set forth in Section 3.2 and to effectuate the purposes set
forth in Section 3.1, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on
loans and borrowing money to permit the Partnership to make
distributions to its Partners in such amounts as are
required under Section 5.1.E or will permit the General
Partner (so long as the General Partner qualifies as REIT)
to avoid the payment of any federal income tax (including,
for this purpose, any excise tax pursuant to Section 4981 of
the Code) and to make distributions to its shareholders
sufficient to permit the General Partner to maintain REIT
status), the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness (including the
securing of same by mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and the incurring
of any obligations the General Partner deems necessary for
the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or
assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the
Partnership (including the exercise or grant of any
conversion, option, privilege or subscription right or other
right available in 25
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connection with any assets at any time held by
the Partnership) or the merger or other combination of the
Partnership with or into another entity on such terms as the
General Partner deems proper;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with
the terms of this Agreement and on any terms it sees fit,
including, without limitation, the financing of the conduct
of the operations of the General Partner, the Partnership or
any of the Partnership's Subsidiaries, the lending of funds
to other Persons (including, without limitation, the General
Partner, its Subsidiaries and the Partnership's
Subsidiaries) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in
which the Partnership has an equity investment and the
making of capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property
or improvements owned by the Partnership or any Subsidiary
of the Partnership or any Person in which the Partnership
has made a direct or indirect equity investment;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the General
Partner considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the
General Partner's powers under this Agreement, including
contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and
other agents and the payment of their expenses and
compensation out of the Partnership's assets;
(7) the mortgage, pledge, encumbrance or hypothecation of any
assets of the Partnership, and the use of the assets of the
Partnership (including, without limitation, cash on hand)
for any purpose consistent with the terms of this Agreement
and on any terms it sees fit, including, without limitation,
the financing of the conduct or the operations of the
General Partner or the Partnership, the lending of funds to
other Persons (including, without limitation, any
Subsidiaries of the Partnership) and the repayment of
obligations of the Partnership, any of its Subsidiaries and
any other Person in which it has an equity investment;
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(8) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(9) the holding, managing, investing and reinvesting of cash and
other assets of the Partnership;
(10) the collection and receipt of revenues and income of the
Partnership;
(11) the selection, designation of powers, authority and duties
and the dismissal of employees of the Partnership
(including, without limitation, employees having titles such
as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants,
consultants and contractors of the Partnership and the
determination of their compensation and other terms of
employment or hiring;
(12) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(13) the formation of, or acquisition of an interest (including
non-voting interests in entities controlled by Affiliates of
the Partnership or third parties) in, and the contribution
of property to, any further limited or general partnerships,
joint ventures, limited liability companies or other
relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the
contributions of funds or property to, or making of loans
to, its Subsidiaries and any other Person in which it has an
equity investment from time to time, or the incurrence of
indebtedness on behalf of such Persons or the guarantee of
the obligations of such Persons); provided that, as long as
the General Partner has determined to continue to qualify as
a REIT, the Partnership may not engage in any such
formation, acquisition or contribution that would cause the
General Partner to fail to qualify as a REIT;
(14) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution or abandonment of any claim, cause of
action, liability, debt or damages due or owing to or from
the Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or
other forms of dispute resolution, the representation of the
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Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of
dispute resolution, the incurring of legal expense and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(15) the determination of the fair market value of any
Partnership property distributed in kind, using such
reasonable method of valuation as the General Partner may
adopt;
(16) the exercise, directly or indirectly, through any attorney-
in-fact acting under a general or limited power of attorney,
of any right, including the right to vote, appurtenant to
any assets or investment held by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person
in which the Partnership has a direct or indirect interest,
individually or jointly with any such Subsidiary or other
Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in
which the Partnership does not have any interest pursuant to
contractual or other arrangements with such Person;
(19) the making, executing and delivering of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
other legal instruments or agreements in writing necessary
or appropriate in the judgment of the General Partner for
the accomplishment of any of the powers of the General
Partner enumerated in this Agreement; and
(20) the distribution of cash to acquire Partnership Units held
by a Limited Partner in connection with a Limited Partner's
exercise of its Redemption Right under Section 8.6; and
(21) the amendment and restatement of Exhibit A to reflect
accurately at all times the Capital Contributions and
Percentage Interests of the Partners as the same are
adjusted from time to time to the extent necessary to
reflect redemptions, Capital Contributions, the issuance of
Partnership Units, the admission of any Additional
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Limited Partner or any Substituted Limited Partner or
otherwise, which amendment and restatement, notwithstanding
anything in this Agreement to the contrary, shall not be
deemed an amendment of this Agreement, as long as the matter
or event being reflected in Exhibit A otherwise is
authorized by this Agreement.
B. No Approval by Limited Partners. Except as provided in Section 7.11,
each of the Limited Partners and the other General Partner agrees that the
General Partner is authorized to execute, deliver and perform the above-
mentioned agreements and transactions on behalf of the Partnership without any
further act, approval or vote of the Partners, notwithstanding any other
provision of this Agreement, the Act or any applicable law, rule or regulation,
to the full extent permitted under the Act or other applicable law. The
execution, delivery or performance by the General Partner or the Partnership of
any agreement authorized or permitted under this Agreement shall not constitute
a breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement or
of any duty stated or implied by law or equity.
C. Insurance. At all times from and after the date hereof, the General
Partner may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnities hereunder and (iii) such other insurance as the
General Partner, in its sole and absolute discretion, determines to be
necessary.
D. Working Capital and Other Reserves. At all times from and after the
date hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner, in its
sole and absolute discretion, deems appropriate and reasonable from time to
time, including upon liquidation of the Partnership under Section 13.
E. No Obligations to Consider Tax Consequences of Limited Partners. In
exercising their authority under this Agreement, the General Partner may, but
shall be under no obligation to, take into account the tax consequences to any
Partner (including the General Partner) of any action taken (or not taken) by
any of them. The General Partner and the Partnership shall not have liability
to a Limited Partner for monetary damages or otherwise for losses sustained,
liabilities incurred or benefits not derived by such Limited Partner in
connection with such decisions, provided that the General Partner have acted in
good faith and pursuant to their authority under this Agreement.
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner have previously filed the Certificate of Limited
Partnership with the Secretary of State of Delaware. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments
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to and restatements of the Certificate of Limited Partnership and do all the
things to maintain the Partnership as a limited partnership (or a partnership in
which the limited partners have limited liability) under the laws of the State
of Delaware and each other state, the District of Columbia or other jurisdiction
in which the Partnership may elect to do business or own property. Subject to
the terms of Section 8.5.A(4), the General Partner shall not be required, before
or after filing, to deliver or mail a copy of the Certificate of Limited
Partnership or any amendment thereto to any Limited Partner. The General
Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and any other state, the District of
Columbia or other jurisdiction in which the Partnership may elect to do business
or own property.
SECTION 7.3 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partners, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declare
and warrant that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by that General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement. All Partnership assets
shall be recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
SECTION 7.4 REIMBURSEMENT OF THE GENERAL PARTNER
A. No Compensation. Except as provided in this Section 7.4 and elsewhere
in this Agreement (including the provisions of Articles V and VI regarding
distributions, payments and allocations to which it may be entitled), the
General Partner shall not be compensated for their services as general partners
of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership shall be
responsible for and shall pay all expenses relating to the Partnership's
organization, the ownership of its assets and its operations. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the operations of the General Partner and to the management and administration
of any Subsidiaries of the General Partner or the Partnership or Affiliates of
the Partnership, such as auditing expenses and filing fees and expenses incurred
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on behalf of the foregoing by the Advisor on behalf of the General Partner
pursuant to the terms of the Advisory Agreement); provided that, the amount of
any such reimbursement shall be reduced by (i) any interest earned by the
General Partner with respect to bank accounts or other instruments or accounts
held by it on behalf of the Partnership as permitted in Section 7.5.A (which
interest is considered to belong to the Partnership and shall be paid over to
the Partnership to the extent not applied to reimburse the General Partner for
expenses hereunder); and (ii) any amount derived by the General Partner from any
investments permitted in Section 7.5.A. The General Partner shall determine in
good faith the amount of expenses incurred by it related to the ownership and
operation of, or for the benefit of, the Partnership. If certain expenses are
incurred for the benefit of the Partnership and other entities (including the
General Partner), such expenses will be allocated to the Partnership and such
other entities in such a manner as the General Partner in its sole and absolute
discretion deems fair and reasonable. Such reimbursements shall be in addition
to any reimbursement to the General Partner pursuant to Section 10.3.C and as a
result of indemnification pursuant to Section 7.7. All payments and
reimbursements hereunder shall be characterized for federal income tax purposes
as expenses of the Partnership incurred on its behalf, and not as expenses of
the General Partner.
C. Partnership Interest Issuance Expenses. The General Partner shall
also be reimbursed for all expenses it incurs relating to any issuance of
Partnership Interests, Shares, Debt of the Partnership or the General Partner or
rights, options, warrants or convertible or exchangeable securities pursuant to
Article IV (including, without limitation, all costs, expenses, damages and
other payments resulting from or arising in connection with litigation related
to any of the foregoing), all of which expenses are considered by the Partners
to constitute expenses of, and for the benefit of, the Partnership.
D. Purchases of Shares by the General Partner. If the General Partner
exercises its rights under the Declaration of Trust to purchase Shares or
otherwise elects to purchase from its shareholders Shares in connection with a
share repurchase or similar program or for the purpose of delivering such Shares
to satisfy an obligation under any dividend reinvestment or equity purchase
program adopted by the General Partner, any employee equity purchase plan
adopted by the General Partner or any similar obligation or arrangement
undertaken by the General Partner in the future, the purchase price paid by the
General Partner for those Shares and any other expenses incurred by the General
Partner in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursable to the General Partner, subject to the
conditions that: (i) if those Shares subsequently are to be sold by the General
Partner, the General Partner shall pay to the Partnership any proceeds received
by the General Partner for those Shares (provided that a transfer of Shares for
Partnership Units pursuant to Section 8.6 would not be considered a sale for
such purposes); and (ii) if such Shares are not retransferred by the General
Partner within thirty (30) days after the purchase thereof, the General Partner
shall cause the Partnership to cancel a number of Partnership Units (rounded to
the nearest whole Partnership Unit) held by the General Partner equal to the
product attained by multiplying the
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number of those Shares by a fraction, the numerator of which is one and the
denominator of which is the Conversion Factor.
E. Reimbursement not a Distribution. If and to the extent any
reimbursement made pursuant to this Section 7.4 is determined for federal income
tax purposes not to constitute a payment of expenses of the Partnership, the
amount so determined shall constitute a guaranteed payment with respect to
capital within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners and shall not be
treated as a distribution for purposes of computing the Partners' Capital
Accounts.
SECTION 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER; RELATIONSHIP OF SHARES
TO PARTNERSHIP UNITS; FUNDING DEBT
A. General. Without the Consent of the Outside Limited Partners, the
General Partner shall not, directly or indirectly, enter into or conduct any
business other than in connection with the ownership, acquisition and
disposition of Partnership Interests as the General Partner or Limited Partner
and the management of the business of the Partnership and such activities as are
incidental thereto. Without the Consent of the Outside Limited Partners, the
assets of the General Partner shall be limited to Partnership Interests and
permitted debt obligations of the Partnership (as contemplated by Section
7.5.F), so that Shares and Partnership Units are completely fungible except as
otherwise specifically provided herein, provided, that the General Partner shall
be permitted to hold such bank accounts or similar instruments or accounts in
its name as it deems necessary to carry out its responsibilities and purposes as
contemplated under this Agreement and its organizational documents (provided
that accounts held on behalf of the Partnership to permit the General Partner to
carry out its responsibilities under this Agreement shall be considered to
belong to the Partnership and the interest earned thereon shall, subject to
Section 7.4.B, be applied for the benefit of the Partnership); and, provided
further, that the General Partner shall be permitted to acquire, directly or
through a Qualified REIT Subsidiary or limited liability company, up to a one
percent (1%) interest in any partnership or limited liability company at least
ninety-nine percent (99%) of the equity of which is owned, directly or
indirectly, by the Partnership. The General Partner and any of its Affiliates
may acquire Limited Partnership Interests and shall be entitled to exercise all
rights of a Limited Partner relating to such Limited Partnership Interests.
B. Repurchase of Shares. If the General Partner exercises its rights
under the Declaration of Trust to purchase Shares or otherwise elects to
purchase from its shareholders Shares in connection with a share repurchase or
similar program or for the purpose of delivering such shares to satisfy an
obligation under any dividend reinvestment or share purchase program adopted by
the General Partner, any employee share purchase plan adopted by the General
Partner or any similar obligation or arrangement undertaken by the General
Partner in the future, then the General Partner shall cause the Partnership to
purchase from the General Partner that number
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of Partnership Units of the appropriate class equal to the product obtained by
multiplying the number of Shares purchased by the General Partner times a
fraction, the numerator of which is one and the denominator of which is the
Conversion Factor, on the same terms and for the same aggregate price that the
General Partner purchased such Shares.
C. Forfeiture of Shares. If the Partnership or the General Partner
acquires Shares as a result of the forfeiture of such Shares under a restricted
or similar share plan, then the General Partner shall cause the Partnership to
cancel that number of Partnership Units equal to the number of Shares so
acquired, and, if the Partnership acquired such Shares, it shall transfer such
Shares to the General Partner for cancellation.
D. Issuances of Shares. After the Effective Date, the General Partner
shall not grant, award, or issue any additional Shares (other than Shares issued
pursuant to Section 8.6 hereof or pursuant to a dividend or distribution
(including any share split) of Shares to all of its shareholders), other equity
securities of the General Partner, New Securities or Convertible Funding Debt
unless (i) the General Partner shall cause, pursuant to Section 4.2.A hereof,
the Partnership to issue to the General Partner Partnership Interests or rights,
options, warrants or convertible or exchangeable securities of the Partnership
having designations, preferences and other rights, all such that the economic
interests are substantially the same as those of such additional Shares, other
equity securities, New Securities or Convertible Funding Debt, as the case may
be, and (ii) the General Partner transfers to the Partnership, as an additional
Capital Contribution, the proceeds from the grant, award, or issuance of such
additional Shares, other equity securities, New Securities or Convertible
Funding Debt, as the case may be, or from the exercise of rights contained in
such additional Shares, other equity securities, New Securities or Convertible
Funding Debt, as the case may be. Without limiting the foregoing, the General
Partner is expressly authorized to issue additional Shares, other equity
securities, New Securities or Convertible Funding Debt, as the case may be, for
less than fair market value, and the General Partner is expressly authorized,
pursuant to Section 4.2.A hereof, to cause the Partnership to issue to the
General Partner corresponding Partnership Interests, as long as (a) the General
Partner concludes in good faith that such issuance is in the interests of the
General Partner and the Partnership (for example, and not by way of limitation,
the issuance of Shares and corresponding Partnership Units pursuant to a share
purchase plan providing for purchases of Shares, either by employees or
shareholders, at a discount from fair market value or pursuant to employee share
options that have an exercise price that is less than the fair market value of
the Shares, either at the time of issuance or at the time of exercise) and (b)
the General Partner transfers all proceeds from any such issuance or exercise to
the Partnership as an additional Capital Contribution.
E. Share Option Plan. If at any time or from time to time, the General
Partner sells Shares pursuant to any Share Option Plan, the General Partner
shall transfer the net proceeds of the sale of such Shares to the Partnership as
an additional Capital Contribution in exchange for an amount of additional
Partnership Units equal to the number of Shares so sold divided by the
Conversion Factor.
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F. Funding Debt. The General Partner may incur a Funding Debt, including,
without limitation, a Funding Debt that is convertible into Shares or otherwise
constitutes a class of New Securities ("Convertible Funding Debt"), subject to
the condition that the General Partner lend to the Partnership the net proceeds
of such Funding Debt; provided, that Convertible Funding Debt shall be issued
pursuant to Section 7.5.D above; and, provided further, that the General Partner
shall not be obligated to lend the net proceeds of any Funding Debt to the
Partnership in a manner that would be inconsistent with the General Partner's
ability to remain qualified as a REIT. If the General Partner enters into any
Funding Debt, the loan to the Partnership shall be on comparable terms and
conditions, including interest rate, repayment schedule and costs and expenses,
as are applicable with respect to or incurred in connection with such Funding
Debt.
SECTION 7.6 TRANSACTIONS WITH AFFILIATES
A. Transactions with Certain Affiliates. Except as expressly permitted
by this Agreement, the Partnership shall not, directly or indirectly, sell,
transfer or convey any property to, or purchase any property from, or borrow
funds from, or lend funds to, any Partner or any Affiliate of the Partnership
that is not also a Subsidiary of the Partnership, except pursuant to
transactions that are on terms that are fair and reasonable and no less
favorable to the Partnership than would be obtained from an unaffiliated third
party.
B. Conflict Avoidance. The General Partner is expressly authorized to
enter into, in the name and on behalf of the Partnership, a right of first
opportunity arrangement and other conflict avoidance agreements with various
Affiliates of the Partnership and General Partner on such terms as the General
Partner, in its sole and absolute discretion, believes is advisable.
C. Benefit Plans Sponsored by the Partnership. The General Partner in
its sole and absolute discretion and without the approval of the Limited
Partners, may propose and adopt on behalf of the Partnership employee benefit
plans funded by the Partnership for the benefit of employees of the General
Partner, the Partnership, Subsidiaries of the Partnership, the Advisor or any
Affiliate of any of them.
SECTION 7.7 INDEMNIFICATION
A. General. The Partnership shall indemnify each Indemnitee to the
fullest extent provided by the Act from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorneys fees and other legal fees and expenses), judgments, fines, settlements
and other amounts arising from or in connection with any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, incurred by the Indemnitee and relating to the Partnership or the
General Partner or the operation of, or the ownership of property by, any of
them as set forth in this Agreement in which any such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established by a final determination of a court of competent jurisdiction that:
(i) the act or
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omission of the Indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) the Indemnitee actually received an improper
personal benefit in money, property or services or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. Without limitation, the foregoing indemnity shall
extend to any liability of any Indemnitee, pursuant to a loan guarantee,
contractual obligation for any indebtedness or other obligation or otherwise,
for any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements consistent with the provisions of
this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the Indemnitee
did not meet the requisite standard of conduct set forth in this Section 7.7.A.
The termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and any insurance
proceeds from the liability policy covering the General Partner and any
Indemnitee, and neither the General Partner nor any Limited Partner shall have
any obligation to contribute to the capital of the Partnership or otherwise
provide funds to enable the Partnership to fund its obligations under this
Section 7.7.
B. Advancement of Expenses. Reasonable expenses expected to be incurred
by an Indemnitee shall be paid or reimbursed by the Partnership in advance of
the final disposition of any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative made or threatened
against an Indemnitee upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. No Limitation of Rights. The indemnification provided by this Section
7.7 shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
D. Insurance. The Partnership may purchase and maintain insurance on
behalf of the Indemnities and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with
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the Partnership's activities, regardless of whether the Partnership would have
the power to indemnify such Person against such liability under the provisions
of this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7, (i) excise
taxes assessed on an Indemnitee, of for which the Indemnitee is otherwise found
liable, with respect to an ERISA Plan pursuant to applicable law shall
constitute fines within the meaning of this Section 7.7 and (iii) actions taken
or omitted by the Indemnitee with respect to an ERISA Plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of such ERISA Plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Partnership.
F. No Personal Liability for Limited Partners. In no event may an
Indemnitee subject any of the Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the benefit of
the Indemnities, their employees, officers, directors, trustees, heirs,
successors, assigns and administrators and shall not be deemed to create any
rights for the benefit of any other Persons. Any amendment, modification or
repeal of this Section 7.7, or any provision hereof, shall be prospective only
and shall not in any way affect the limitation on the Partnership's liability to
any Indemnitee under this Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or related
to matters occurring, in whole or in part, prior to such amendment, modification
or repeal, regardless of when such claims may arise or be asserted.
I. Indemnification Payments Not Distributions. If and to the extent any
payments to the General Partner pursuant to this Section 7.7 constitute gross
income to the General Partner (as opposed to the repayment of advances made on
behalf of the Partnership), such amounts shall constitute guaranteed payments
within the meaning of Section 707(c) of the Code, shall be treated consistently
therewith by the Partnership and all Partners, and shall not be treated as
distributions for purposes of computing the Partners' Capital Accounts.
J. Exception to Indemnification. Notwithstanding anything to the
contrary in this Agreement, the General Partner shall not be entitled to
indemnification hereunder for any loss, claim, damage, liability or expense for
which such General Partner is obligated to indemnify the Partnership under any
other agreement between such General Partner and the Partnership.
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SECTION 7.8 LIABILITY OF THE GENERAL PARTNER
A. GENERAL. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS
AGREEMENT, NO GENERAL PARTNER SHALL BE LIABLE FOR MONETARY DAMAGES TO THE
PARTNERSHIP, ANY PARTNERS OR ANY Assignees for losses sustained, liabilities
incurred or benefits not derived as a result of errors in judgment or mistakes
of fact or law or of any act or omission unless that General Partner acted in
bad faith and the act or omission was material to the matter giving rise to the
loss, liability or benefit not derived.
B. No Obligation to Consider Separate Interests of Limited Partners or
Shareholders. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, that the General Partner is
under no obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or
Assignees) in deciding whether to cause the Partnership to take (or decline to
take) any actions, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.
C. Actions of Agents. Subject to its obligations and duties as General
Partner set forth in Section 7.1.A, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon them hereunder either directly or by or through their agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by the General Partner in good faith.
D. Effect of Amendment. Notwithstanding any other provision contained
herein, any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. Reliance on Documents. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties.
B. Reliance on Advisors. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and
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advisers selected by them, and any act taken or omitted to be taken in reliance
upon the opinion of such Persons as to matters which the General Partner
reasonably believes to be within such Person's professional or expert competence
shall be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
C. Action Through Agents. The General Partner shall have the right, in
respect of any of its powers or obligations hereunder, to act through any of its
duly authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the General Partner
hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation of the General
Partner. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to allow the General Partner to avoid incurring any
liability for taxes under Section 857 or 4981 of the Code, is expressly
authorized under this Agreement and is deemed approved by all of the Limited
Partners.
E. Actions to Maintain REOC Status. If and so long as the Partnership
Interests of "benefit plan investors" is "significant" (as such terms, or terms
succeeding thereto with the same objective, are used in 29 C.F.R. Section
2510.3-101(f) (such regulation or successor regulation being known as the "Plan
Assets Regulation")), or if the General Partner receives written notice from
another General Partner requesting that the affairs of the Partnership be
conducted in compliance with the exception for a real estate operating company
("REOC") as provided in the Plan Assets Regulation, then the General Partner
shall use its best efforts to conduct the affairs of the Partnership as a REOC
and so that the assets of the Partnership will not be "plan assets" (as such
term is defined in the Plan Assets Regulations) of any ERISA Partner.
(i) If the General Partner, pursuant to this Section 7.10.E, intends
to conduct the affairs of the Partnership as a REOC, the General Partner shall
promptly deliver to each ERISA Partner and to any requesting General Partner an
opinion of counsel reasonably acceptable to each such ERISA Partner or
requesting General Partner with respect to the "initial valuation date" and each
"annual valuation period" (as those terms, or terms succeeding thereto with the
same objective, are defined in the Plan Assets Regulation). Such opinion of
counsel shall state, (A) as to the opinion respecting the "initial valuation
date," that the Partnership shall qualify or be qualified as a REOC for the
period beginning on such "initial valuation date" and ending on the last day of
the first "annual valuation period," and (B) as to each annual opinion
respecting each "annual valuation period," that the Partnership shall qualify or
be qualified as a REOC for the 12-month period following the last day of such
"annual valuation period." Each opinion
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referred to in the prior two sentences may rely upon, among other things, a
certificate of the General Partner as to the exercise of management rights with
respect to one or more investments during the appropriate period and as to a
description of such investments, and such counsel opinion also shall state
whether the Partnership has included in a certification to opinion counsel a
statement to the effect that on such "initial valuation date" or during such
"annual valuation period" at least 50 percent of Partnership assets (other than
short-term investments pending long-term commitment or distribution to
investors), valued at cost, were invested in real estate investments as
described in the Plan Assets Regulation.
(ii) If the opinion described in this subsection is not provided in
the affirmative, or if any ERISA Partner or a requesting General Partner shall
obtain and deliver to the General Partner an opinion of counsel to such ERISA
Partner or requesting General Partner (which opinion shall be reasonably
satisfactory to the General Partner) that there is a reasonable probability that
either (A) the Partnership was or will not be a REOC for any period in which
either participation by benefit plan investors in the Partnership is significant
or a requesting General Partner is an investor, or (B) the assets of the
Partnership were or will be "plan assets" of ERISA Plan investors, then the
General Partner is hereby authorized and empowered to take such actions as it
deems necessary and appropriate to mitigate, prevent, or cure such adverse
consequences resulting to the ERISA Plan investors or requesting General
Partner, including modifying the manner in which the Partnership conducts its
business, or requiring each ERISA Partner (on a pro rata basis unless otherwise
consented to by all ERISA Partners) to transfer all or a portion of its interest
at a price not less than the fair value of such interest or portion thereof.
Such calculation of fair value of an interest or of any Partnership asset shall
be made by the General Partner.
SECTION 7.10 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership, to enter into any contracts on behalf of the
Partnership and to take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such
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certificate, document or instrument, this Agreement was in full force and
effect, (ii) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership, and (iii) such certificate, document or instrument was duly
executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
SECTION 7.11 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY
A. Consent Required. The General Partner may not take any action in
contravention of an express prohibition or limitation of this Agreement without
the written Consent of (i) all Partners adversely affected or (ii) such lower
percentage of the Limited Partnership Interests as may be specifically provided
for under a provision of this Agreement or the Act.
B. Sale of All Assets of the Partnership. Except as provided in Article
XIII, the General Partner may not, directly or indirectly, cause the Partnership
to sell, exchange, transfer or otherwise dispose of all or substantially all of
the Partnership's assets in a single transaction or series of related
transactions (including by way of merger (including a triangular merger),
consolidation or other combination with any other Persons) (i) if such merger,
sale or other transaction is in connection with a Termination Transaction
permitted under Section 11.2.B hereof, without the Consent of the Partners
holding at least a majority of the then outstanding Partnership Units (including
any Partnership Units held by the General Partner), or (ii) otherwise, without
the Consent of the Outside Limited Partners.
SECTION 7.12 LOANS BY THIRD PARTIES
The Partnership may incur Debt, or enter into similar credit, guarantee,
financing or refinancing arrangements for any purpose (including, without
limitation, in connection with any acquisition of property) with any Person that
is not the General Partner upon such terms as the General Partner determines
appropriate; provided that, the Partnership shall not incur any Debt that is
recourse to the General Partner, except to the extent otherwise agreed to by
such General Partner in its sole discretion.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
SECTION 8.1 LIMITATION OF LIABILITY
The Limited Partners shall have no liability under this Agreement except as
expressly provided in this Agreement, including Section 10.5, or under the Act.
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SECTION 8.2 MANAGEMENT OF BUSINESS
No Limited Partner or Assignee (other than the General Partner or the
Advisor, any of their Affiliates or any officer, director, employee, partner,
agent or trustee of the General Partner or the Advisor, the Partnership or any
of their Affiliates, in their capacity as such) shall take part in the
operation, management or control (within the meaning of the Act) of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner or the Advisor, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner or the Advisor, the Partnership or any of their Affiliates,
in their capacity as such, shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS
Subject to Section 7.5 hereof, and subject to any agreements entered into
pursuant to Section 7.6.C hereof and to any other agreements entered into by a
Limited Partner or its Affiliates with the Partnership or a Subsidiary, any
Limited Partner (other than the General Partner) and any officer, director,
employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities in direct or indirect competition with the Partnership. Neither
the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. None of
the Limited Partners (other than the General Partner) nor any other Person shall
have any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner to the extent expressly provided herein), and such Person shall
have no obligation pursuant to this Agreement to offer any interest in any such
business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
SECTION 8.4 RETURN OF CAPITAL
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. No Limited
Partner or Assignee shall have priority over any other Limited Partner or
Assignee either as to the return of Capital Contributions (except as permitted
by Section 4.2.A) or, except to the extent provided by Exhibit C or as permitted
by Sections 4.2.A, 5.1.B(i), 6.1.A(ii) and 6.1.B(i), or otherwise expressly
provided in this Agreement, as to profits, losses, distributions or credits.
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SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. General. In addition to other rights provided by this Agreement or by
the Act, and except as limited by Section 8.5.D, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon written demand with a statement of
the purpose of such demand and at such Limited Partner's own expense:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the Securities and Exchange Commission by the General
Partner pursuant to the Exchange Act;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate of Limited
Partnership and all amendments thereto, together with executed
copies of all powers of attorney pursuant to which this
Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a
Partner.
B. Notice of Conversion Factor. The Partnership shall notify each
Limited Partner upon request of the then current Conversion Factor and any
changes that have been made thereto.
C. Notice of Extraordinary Transaction of the General Partner. The
General Partner shall not make any extraordinary distributions of cash or
property to its shareholders or effect a merger (including, without limitation,
a triangular merger), a sale of all or substantially all of its assets or any
other similar extraordinary transaction without notifying the Limited Partners
of its intention to make such distribution or effect such merger, sale or other
extraordinary transaction at least twenty (20) Business Days prior to the record
date to determine shareholders eligible to receive such distribution or to vote
upon the approval of such merger, sale or other extraordinary transaction (or,
if no such record date is applicable, at least twenty (20) business days before
consummation of such merger, sale or other extraordinary transaction). This
provision for such notice shall not be deemed (i) to permit any transaction that
otherwise is prohibited by this Agreement or requires a Consent of the Partners
or (ii) to require a Consent of the Limited
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Partners to a transaction that does not otherwise require Consent under this
Agreement. Each Limited Partner agrees, as a condition to the receipt of the
notice pursuant hereto, to keep confidential the information set forth therein
until such time as the General Partner has made public disclosure thereof and to
use such information during such period of confidentiality solely for purposes
of determining whether to exercise the Redemption Right; provided, however, that
a Limited Partner may disclose such information to its attorney, accountant
and/or financial advisor for purposes of obtaining advice with respect to such
exercise so long as such attorney, accountant and/or financial advisor agrees to
receive and hold such information subject to this confidentiality requirement.
D. Confidentiality. Notwithstanding any other provision of this Section
8.5, the General Partner may keep confidential from the Limited Partners, for
such period of time as the General Partner determine in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or could damage the Partnership or its
business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
SECTION 8.6 REDEMPTION RIGHT
A. General. (i) Subject to Section 8.6.C, at any time on or after the
first anniversary date of the issuance of a Partnership Unit to a Limited
Partner pursuant to Article IV hereof (which one-year period shall commence upon
the issuance of such Partnership Unit regardless of whether such Partnership
Unit is designated upon issuance as a Class A Unit, a Class B Unit or otherwise
and shall include the period of time from the date such Partnership Unit is
issued to such Limited Partner as other than a Class A Unit until the date such
Partnership Unit is converted automatically to a Class A Unit pursuant to
Section 4.2.C hereof), or on or after such date prior to the expiration of such
one-year period as the General Partner, in its sole and absolute discretion,
designates with respect to any or all Class A Units then outstanding, the holder
of a Partnership Unit (if other than the General Partner or any Subsidiary of
the General Partner) shall have the right (the "Redemption Right") to require
the Partnership to redeem such Partnership Unit, with such redemption to occur
on the Specified Redemption Date and at a redemption price equal to and in the
form of the Cash Amount to be paid by the Partnership. Any such Redemption
Right shall be exercised pursuant to a Notice of Redemption delivered to the
Partnership (with a copy to the General Partner) by the Limited Partner who is
exercising the Redemption Right (the "Redeeming Partner"). A Limited Partner
may exercise the Redemption Right from time to time, without limitation as to
frequency, with respect to part or all of the Units that is owns, as selected by
the Limited Partner, provided that a Limited Partner may not exercise the
Redemption Right for less than one thousand (1,000) Partnership Units unless
such Redeeming Partner then holds less than one thousand (1,000) Partnership
Units, in which event the Redeeming Partner must exercise the Redemption Right
for all of the Partnership Units held by such Redeeming Partner.
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(ii) The Redeeming Partner shall have no right with respect to any
Partnership Units so redeemed to receive any distributions paid after the
Specified Redemption Date with respect to such Partnership Units.
(iii) The Assignee of any Limited Partner may exercise the rights of
such Limited Partner pursuant to this Section 8.6, and such Limited Partner
shall be deemed to have assigned such rights to such Assignee and shall be bound
by the exercise of such rights by such Limited Partner's Assignee. In
connection with any exercise of such rights by such Assignee on behalf of such
Limited Partner, the Cash Amount shall be paid by the Partnership directly to
such Assignee and not to such Limited Partner.
(iv) If the General Partner provides notice to the Limited Partners,
pursuant to Section 8.5.C hereof, the Redemption Right shall be exercisable,
without regard to whether the Partnership Units have been outstanding for any
specified period, during the period commencing on the date on which the General
Partner provides such notice and ending on the record date to determine
shareholders eligible to receive such distribution or to vote upon the approval
of such merger, sale or other extraordinary transaction (or, if no such record
date is applicable, at least twenty (20) business days before the consummation
of such merger, sale or other extraordinary transaction). If this subparagraph
(iv) applies, the Specified Redemption Date is the date on which the Partnership
and the General Partner receive notice of exercise of the Redemption Right,
rather than ten (10) Business Days after receipt of the notice of redemption.
B. General Partner Assumption of Right. (i) If a Limited Partner has
delivered a Notice of Redemption, the General Partner may, in its sole and
absolute discretion (subject to the limitations on ownership and transfer of
Shares set forth in the Declaration of Trust), elect to assume directly and
satisfy a Redemption Right by paying to the Redeeming Partner either the Cash
Amount or the Shares Amount, as the General Partner determines in its sole and
absolute discretion (provided that payment of the Redemption Amount in the form
of Shares shall be in Shares registered for resale under Section 12 of the
Exchange Act and listed for trading on the exchange or national market on which
the Shares are Publicly Traded, and provided further that, if the Shares are not
Publicly Traded at the time a Redeeming Partner exercises its Redemption Right,
the Redemption Amount shall be paid only in the form of the Cash Amount unless
the Redeeming Partner, in its sole and absolute discretion, consents to payment
of the Redemption Amount in the form of the Shares Amount), on the Specified
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the Redeeming Partner and shall be treated for
all purposes of this Agreement as the owner of such Partnership Units. Unless
the General Partner, in its sole and absolute discretion, shall exercise its
right to assume directly and satisfy the Redemption Right, the General Partner
shall not have any obligation to the Redeeming Partner or to the Partnership
with respect to the Redeeming Partner's exercise of the Redemption Right. If
the General Partner shall exercise its right to satisfy the Redemption Right in
the manner described in the first sentence of this Section 8.6B and shall fully
perform its obligations in connection therewith, the Partnership shall have no
right or
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obligation to pay any amount to the Redeeming Partner with respect to such
Redeeming Partner's exercise of the Redemption Right, and each of the Redeeming
Partner, the Partnership and the General Partner shall, for federal income tax
purposes, treat the transaction between the General Partner and the Redeeming
Partner as a sale of the Redeeming Partner's Partnership Units to the General
Partner. Nothing contained in this Section 8.6.B shall imply any right of the
General Partner to require any Limited Partner to exercise the Redemption Right
afforded to such Limited Partner pursuant to Section 8.6.A.
(ii) If the General Partner determines to pay the Redeeming Partner
the Redemption Amount in the form of Shares, the total number of Shares to be
paid to the Redeeming Partner in exchange for the Redeeming Partner's
Partnership Units shall be the applicable Shares Amount. If this amount is not
a whole number of Shares, the Redeeming Partner shall be paid (i) that number of
Shares which equals the nearest whole number less than such amount plus (ii) an
amount of cash which the General Partner determines, in its reasonable
discretion, to represent the fair value of the remaining fractional Share which
would otherwise be payable to the Redeeming Partner.
(iii) Each Redeeming Partner agrees to execute such documents as the
General Partner may reasonably require in connection with the issuance of Shares
upon exercise of the Redemption Right.
C. Exceptions to Exercise of Redemption Right. Notwithstanding the
provisions of Sections 8.6.A and 8.6.B, a Partner shall not be entitled to
exercise the Redemption Right pursuant to Section 8.6.A if (but only as long as)
the delivery of Shares to such Partner on the Specified Redemption Date (i)
would be prohibited under the Declaration of Trust or (ii) would be prohibited
under applicable federal or state securities laws or regulations (in each case
regardless of whether the General Partner would in fact assume and satisfy the
Redemption Right).
D. No Liens on Partnership Units Delivered for Redemption. Each Limited
Partner covenants and agrees with the General Partner that all Partnership Units
delivered for redemption shall be delivered to the Partnership or the General
Partner, as the case may be, free and clear of all liens, and, notwithstanding
anything contained herein to the contrary, neither the General Partner nor the
Partnership shall be under any obligation to acquire Partnership Units which are
or may be subject to any liens. Each Limited Partner further agrees that, if
any state or local property transfer tax is payable as a result of the transfer
of its Partnership Units to the Partnership or the General Partner, such Limited
Partner shall assume and pay such transfer tax.
E. Additional Partnership Interests. If the Partnership issues
Partnership Interests to any Additional Limited Partner pursuant to Article IV,
the General Partner shall make such revisions to this Section 8.6 as it
determines are necessary to reflect the issuance of such
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Partnership Interests (including setting forth any restrictions on the exercise
of the Redemption Right with respect to such Partnership Interests).
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 9.3. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
SECTION 9.2 FISCAL YEAR
The fiscal year of the Partnership shall be the calendar year.
SECTION 9.3 REPORTS
A. Annual Reports. As soon as practicable, but in no event later than
the date on which the General Partner mails its annual report to its
shareholders, the General Partner shall cause to be mailed to each Limited
Partner an annual report, as of the close of the most recently ended Partnership
Year, containing financial statements of the Partnership, or of the General
Partner if such statements are prepared solely on a consolidated basis with the
Partnership, for such Partnership Year, presented in accordance with generally
accepted accounting principles, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the General
Partner.
B. Quarterly Reports. If and to the extent that the General Partner
mails quarterly reports to its shareholders, as soon as practicable, but in no
event later than the date on such reports are mailed, the General Partner shall
cause to be mailed to each Limited Partner a report containing unaudited
financial statements, as of the last day of such calendar quarter, of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated
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basis with the Partnership, and such other information as may be required by
applicable law or regulation, or as the General Partner determines to be
appropriate.
ARTICLE X
TAX MATTERS
SECTION 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by Limited Partners
for federal and state income tax reporting purposes.
SECTION 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in its sole
and absolute discretion, determine whether to make any available election
pursuant to the code, provided, however, that the General Partner shall make the
election under Section 754 of the Code in accordance with applicable regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) upon the General Partner's determination in their sole and absolute
discretion that such revocation is in the best interests of the Partners.
SECTION 10.3 TAX MATTERS PARTNER
A. General. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, tax payer identification
number and profit interest of each of the Limited Partners and any Assignees,
provided, however, that such information is provided to the Partnership by the
Limited Partners.
B. Powers. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner
for income tax purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial proceedings being
referred to as "judicial review"), and in the
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settlement agreement the tax matters partner may expressly state
that such agreement shall bind all Partners, except that such
settlement agreement shall not bind any Partner (i) who (within
the time prescribed pursuant to the Code and Regulations) files a
statement with the IRS providing that the tax matters partner
shall not have the authority to enter into a settlement agreement
on behalf of such Partner or (ii) who is a "notice partner" (as
defined in Section 6231(a)(8) of the Code) or a member of a
"notice group" (as defined in Section 6223(b)(2) of the Code);
(2) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account
by a Partner for tax purposes (a "final adjustment") is mailed to
the tax matters partner, to seek judicial review of such final
adjustment, including the filing of a petition for readjustment
with the Tax Court or the filing of a complaint for refund with
the United States Claims Court or the District Court of the
United States for the district in which the Partnership's
principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
at any time and, if any part of such request is not allowed by
the IRS, to file an appropriate pleading (petition or complaint)
for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to
be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or
regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 shall be fully applicable to the tax matters
partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no compensation
for its services. All third party costs and expenses incurred by the tax
matters partner in performing its
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duties as such (including legal and accounting fees and expenses) shall be borne
by the Partnership. Nothing herein shall be construed to restrict the
Partnership from engaging an accounting firm and/or law firm to assist the tax
matters partner in discharging its duties hereunder, so long as the compensation
paid by the Partnership for such services is reasonable.
SECTION 10.4 ORGANIZATIONAL EXPENSES
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
SECTION 10.5 WITHHOLDING
Each Limited Partner hereby authorizes the Partnership to withhold from or
pay on behalf of or with respect to such Limited Partner any amount of federal,
state, local, or foreign taxes that the General Partner determines that the
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited Partner
or (ii) the General Partner determines, in its sole and absolute discretion,
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. If a Limited Partner fails to pay any amounts owed to the
Partnership pursuant to this Section 10.5 when due, the General Partner may, in
its sole and absolute discretion, elect to make the payment to the Partnership
on behalf of such defaulting Limited Partner, and in such event shall be deemed
to have loaned such amount to such defaulting Limited Partner and shall succeed
to all rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions).
Any amounts payable by a Limited Partner hereunder shall bear interest at the
base rate on corporate loans at large United States money center commercial
banks, as published from time to time in the Wall Street Journal, plus four (4)
percentage points (but not higher than the maximum lawful rate under the laws of
the State of Illinois) from the date such amount is due (i.e., fifteen (15) days
after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request to
perfect or enforce the security interest created hereunder.
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ARTICLE XI
TRANSFERS AND WITHDRAWALS
SECTION 11.1 TRANSFER
A. Definition. The term "transfer," when used in this Article XI with
respect to a Partnership Interest or a Partnership Unit, shall be deemed to
refer to a transaction by which the General Partner purports to assign all or
any part of its General Partnership Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article XI does not include
any redemption or repurchase of Partnership Units by the Partnership from a
Partner or acquisition of Partnership Units from a Limited Partner by the
General Partner pursuant to Section 8.6 or otherwise. No part of the interest
of a Limited Partner shall be subject to the claims of any creditor, any spouse
for alimony or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered except as may be specifically provided for
in this Agreement.
B. General. No Partnership Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article XI. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article XI shall be null and void.
SECTION 11.2 TRANSFERS OF PARTNERSHIP INTERESTS OF GENERAL PARTNER
A. Except for transfers of Partnership Units to the Partnership as
provided in Section 7.5 or Section 8.6, the General Partner may not transfer any
of its Partnership Interest (including both its General Partnership Interest and
its Limited Partnership Interest) except in connection with a transaction
described in Section 11.2.B or as otherwise expressly permitted under this
Agreement, nor shall the General Partner withdraw as the General Partner except
in connection with a transaction described in Section 11.2.B. The General
Partner may not transfer any of its Partnership Interests or withdraw as the
General Partner except (i) in connection with a transaction described in Section
11.2.B, (ii) as set forth in Section 11.2.C or (iii) as set forth in Section
7.9.E.
B. The General Partner shall not engage in any merger (including a
triangular merger), consolidation or other combination with or into another
person, sale of all or substantially all of its assets or any reclassification,
recapitalization or change of outstanding Shares (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination as described in the definition of "Conversion Factor") ("Termination
Transaction"), unless the Termination Transaction has been approved by the
Consent of the
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Partners holding at least a majority of the then outstanding Partnership Units
(including any Partnership Units held by the General Partner) and in connection
with which all Limited Partners either will receive, or will have the right to
elect to receive, for each Partnership Unit an amount of cash, securities, or
other property equal to the product of the Conversion Factor multiplied by the
greatest amount of cash, securities or other property paid to a holder of Shares
corresponding to such Partnership Unit in consideration of one such Share at any
time during the period from and after the date on which the Termination
Transaction is consummated; provided that, if, in connection with the
Termination Transaction, a purchase, tender or exchange offer shall have been
made to and accepted by the holders of more than fifty percent (508) of the
outstanding Shares, each holder of Partnership Units shall receive, or shall
have the right to elect to receive without any right of Consent set forth above
in this subsection B, the greatest amount of cash, securities, or other property
which such holder would have received had it exercised the Redemption Right and
received Shares in exchange for its Partnership Units immediately prior to the
expiration of such purchase, tender or exchange offer and had thereupon accepted
such purchase, tender or exchange offer.
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. General. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6, a Limited Partner (other than the General Partner) may
transfer with or without the consent of the General Partner, all or any portion
of its Partnership Interest, or any of such Limited Partner's rights as a
Limited Partner, provided that prior written notice of such proposed transfer is
delivered to the General Partner. Notwithstanding the foregoing, any Limited
Partner may, at any time, without the consent of the General Partner, (i)
transfer all or any portion of its Partnership Interest to the General Partner,
(ii) transfer all or any portion of its Partnership Interest to an Affiliate,
another original Limited Partner or to an Immediate Family member, subject to
the provisions of Section 11.6, (iii) transfer all or any portion of its
Partnership Interest to a trust for the benefit of a charitable beneficiary or
to a charitable foundation, subject to the provisions of Section 11.6, and (iv)
subject to the provisions of Section 11.6, pledge (a "Pledge") all or any
portion of its Partnership Interest to a lending institution, which is not an
Affiliate of such Limited Partner, as collateral or security for a bona fide
loan or other extension of credit, and transfer such pledged Partnership
Interest to such lending institution in connection with the exercise of remedies
under such loan or extension or credit. Each Limited Partner or Assignee
(resulting from a transfer made pursuant to clauses (i) - (iv) of the proviso of
the preceding sentence) shall have the right to transfer all or any portion of
its Partnership Interest, subject to the provisions of Section 11.6 and the
satisfaction of each of the following conditions (in addition to the right of
each such Limited Partner or Assignee to continue to make any such transfer
permitted by clauses (i) - (iv) of such proviso without satisfying either of the
following conditions):
(a) GENERAL PARTNER RIGHT OF FIRST REFUSAL. The transferring Partner
shall give written notice of the proposed transfer to the General
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Partner, which notice shall state (i) the identity of the
proposed transferee, and (ii) the amount and type of
consideration proposed to be received for the transferred
Partnership Units. The General Partner shall have ten (10) days
upon which to give the transferring Partner notice of its
election to acquire the Partnership Units on the proposed terms.
If it so elects, it shall purchase the Partnership Units on such
terms within ten (10) days after giving notice of such election.
If it does not so elect, the transferring Partner may transfer
such Partnership Units to a third party, on economic terms no
more favorable to the transferee than the proposed terms, subject
to the other condition of this Section 11.3.
(b) QUALIFIED TRANSFEREE. Any transfer of a Partnership Interest
shall be made only to Qualified Transferees.
It is a condition to any transfer otherwise permitted hereunder (excluding
Pledges of a Partnership Interest, but including any transfer of the pledged
Partnership Interest, whether to the secured party or otherwise, pursuant to the
secured party's exercise of its remedies under such Pledge or the related loan
or extension of credit) that the transferee assumes by operation of law or
express agreement all of the obligations of the transferor Limited Partner under
this Agreement with respect to such transferred Partnership Interest and no such
transfer (other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor Partner of its
obligations under this Agreement without the approval of the General Partner, in
its reasonable discretion. Notwithstanding the foregoing, any transferee of any
transferred Partnership Interest shall be subject to any and all ownership
limitations contained in the Declaration of Trust. Any transferee, whether or
not admitted as a Substituted Limited Partner, shall take subject to the
obligations of the transferor hereunder. Unless admitted as a Substitute
Limited Partner, no transferee, whether by a voluntary transfer, by operation of
law or otherwise, shall have rights hereunder, other than the rights of an
Assignee as provided in Section 11.5.
B. Incapacitated Limited Partners. If a Limited Partner is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General Partner may
prohibit any transfer of Partnership Units by a Limited Partner unless it
receives a written opinion of legal counsel (which opinion and counsel shall be
reasonably satisfactory to the Partnership) to such Limited Partner that such
transfer would not require filing of a registration statement under the
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Securities Act or would not otherwise violate any federal, or state securities
laws or regulations applicable to the Partnership or the Partnership Unit or, at
the option of the Partnership, an opinion of legal counsel to the Partnership to
the same effect.
D. No Transfers Affecting Tax Status of Partnership. No transfer of
Partnership Units by a Limited Partner (including a redemption or exchange
pursuant to Section 8.6) may be made to any Person if (i) in the opinion of
legal counsel for the Partnership, it would result in the Partnership being
treated as an association taxable as a corporation for federal income tax
purposes or would result in a termination of the Partnership for federal income
tax purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners other than the General Partner or
any Subsidiary of either the General Partner or pursuant to a transaction
expressly permitted under Section 7.11.B or Section 11.2), (ii) in the opinion
of legal counsel for the Partnership, it would adversely affect the ability of
the General Partner to continue to qualify as a REIT or would subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code or (iii) such transfer is effectuated through an "established securities
market" or a "secondary market (or the substantial equivalent thereof)" within
the meaning of Section 7704 of the Code.
E. No Transfers to Holders of Nonrecourse Liabilities. No Pledge or
transfer of any Partnership Units may be made to a lender to the Partnership or
any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability unless (i) the General Partner is provided notice thereof
and (ii) the lender enters into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Redemption Amount any Partnership
Units in which a security interest is held simultaneously with the time at which
such lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
SECTION 11.4 SUBSTITUTED LIMITED PARTNERS
A. Consent of General Partner. No Limited Partner shall have the right
to substitute a transferee as a Limited Partner in its place. The General
Partner shall, however, have the right to consent to the admission of a
transferee of the interest of a Limited Partner pursuant to this Section 11.4 as
a Substituted Limited Partner, which consent may be, given or withheld by the
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner. The General Partner hereby grants its consent
to the admission as a Substituted Limited Partner to any bona fide financial
institution that loans money or otherwise extends credit to a holder of Units
and thereafter becomes the owner of such Units pursuant to the exercise by such
financial institution of its rights under a Pledge of such Units granted in
connection with such loan or extension of credit.
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B. Rights of Substituted Limited Partner. A transferee who has been
admitted as a Substituted Limited Partner in accordance with this Article XI
shall have all the rights and powers and be subject to all the restrictions and
liabilities of a Limited Partner under this Agreement. The admission of any
transferee as a Substituted Limited Partner shall be conditioned upon the
transferee executing and delivering to the Partnership an acceptance of all the
terms and conditions of this Agreement (including, without limitation, the
provisions of Section 15.11) and such other documents or instruments as may be
required to effect the admission.
C. Amendment of Exhibit A. Upon the admission of a Substituted Limited
Partner, the General Partner shall amend Exhibit A to reflect the name, address,
Capital Account, number of Partnership Units, and Percentage Interest of such
Substituted Limited Partner and to eliminate or adjust, if necessary, the name,
address, Capital Account and Percentage Interest and interest of the predecessor
of such Substituted Limited Partner.
SECTION 11.5 ASSIGNEES
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
entitled to all the rights of an assignee of a limited partnership interest
under the Act, including the right to receive distributions from the Partnership
and the share of Net Income, Net Losses, gain, loss and Recapture Income
attributable to the Partnership Units assigned to such transferee, and shall
have the rights granted to the Limited Partners under Section 8.6, but shall not
be deemed to be a holder of Partnership Units for any other purpose under this
Agreement, and shall not be entitled to vote such Partnership Units in any
matter presented to the Limited Partners for a vote (such Partnership Units
being deemed to have been voted on such matter in the same proportion as all
other Partnership Units held by Limited Partners are voted). If any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article XI to the
same extent and in the same manner as any Limited Partner desiring to make an
assignment of Partnership Units.
SECTION 11.6 GENERAL PROVISIONS
A. Withdrawal of Limited Partner. No Limited Partner may withdraw from
the Partnership other than as a result of a permitted transfer of all of such
Limited Partner's Partnership Units in accordance with this Article XI or
Pursuant to redemption of all of its Partnership Units under Section 8.6.
B. Termination of Status as Limited Partner. Any Limited Partner who
shall transfer all of its Partnership Units in a transfer permitted pursuant to
this Article XI or pursuant to redemption of all of its Partnership Units under
Section 8.6 shall cease to be a Limited Partner.
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C. Timing of Transfers. Transfers pursuant to this Article XI may only be
made upon three business days prior notice, unless the General Partner otherwise
agrees.
D. Allocations. If any Partnership Interest is transferred during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article XI or redeemed or transferred pursuant to Section
8.6, Net Income, Net Losses, each item thereof and all other items attributable
to such interest for such fiscal year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d) of
the Code, using the interim closing of the books method (unless the General
Partner, in its sole and absolute discretion, elects to adopt a daily, weekly,
or a monthly proration period, in which event Net Income, Net Losses, each item
thereof and all other items attributable to such interest for such fiscal year
shall be prorated based upon the applicable method selected by the General
Partner). Solely for purposes of making such allocations, each of such items
for the calendar month in which the transfer or redemption occurs shall be
allocated to the Person who is a Partner as of midnight on the last day of said
month. All distributions of Available Cash attributable to any Partnership Unit
with respect to which the Partnership Record Date is before the date of such
transfer, assignment or redemption shall be made to the transferor Partner or
the Redeeming Partner, as the case may be, and, in the case of a transfer or
assignment other than a redemption, all distributions of Available Cash
thereafter attributable to such Partnership Unit shall be made to the transferee
Partner.
E. Additional Restrictions. In addition to any other restrictions on
transfer herein contained, including without limitation the provisions of this
Article XI, in no event may any transfer or assignment of a Partnership Interest
by any Partner (including pursuant to Section 8.6) be made without the express
consent of the General Partner, in its sole and absolute discretion, (i) to any
person or entity who lacks the legal right, power or capacity to own a
Partnership Interest; (ii) in violation of applicable law, (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest; (iv) if in the opinion of legal counsel to the Partnership
such transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the redemption or exchange for Shares
of all Partnership Units held by all Limited Partners or pursuant to a
transaction expressly permitted under Section 7.11.B or Section 11.2); (v) if in
the opinion of counsel to the Partnership, such transfer would cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners or pursuant to a transaction
expressly permitted under Section 7.11.B or Section 11.2)7 (vi) if such transfer
would cause the Partnership Interests of "benefit plan investors" to become
"significant," as those terms are used in Section 7.9.E., or would cause the
Partnership to become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(c) of the Code); (vii) if
such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant
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to Department of Labor Regulations Section 2510.1-101t (viii) if such transfer
requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws; (ix) if such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code or such transfer causes the Partnership to become a "publicly traded
partnership," as such term is defined in Section 469(k)(2) or Section 7704(b) of
the Code (provided that this clause (ix) shall not be the basis for limiting or
restricting in any manner the exercise of the Redemption Right under Section 8.6
unless, and only to the extent that, outside tax counsel provides to the General
Partner an opinion to the effect that, in the absence of such limitation or
restriction, there is a significant risk that the Partnership will be treated as
a "publicly traded partnership" and, by reason thereof, taxable as a
corporation); (x) if such transfer subjects the Partnership to regulation under
the Investment Company Act of 1940, the Investment Advisors Act of 1940 or
ERISA, each as amended; (xi) such transfer could adversely affect the ability of
the General Partner to remain qualified as a REIT; or (xii) if in the opinion of
legal counsel for the transferring Partner (which opinion and counsel shall be
reasonably satisfactory to the Partnership) or legal counsel for the
Partnership, such transfer would adversely affect the ability of the General
Partner to continue to qualify as a REIT or subject the General Partner to any
additional taxes under Section 857 or section 4981 of the Code.
F. Avoidance of "Publicly Traded Partnership" Status. The General
Partner shall monitor the transfers of interests in the Partnership to determine
(i) if such interests are being traded on an "established securities market" or
a "secondary market (or the substantial equivalent thereof) n within the meaning
of Section 7704 of the Code and (ii) whether additional transfers of interests
would result in the Partnership being unable to qualify for at least one of the
"safe harbors" set forth in Regulations Section 1.7704-1 (or such other guidance
subsequently published by the IRS setting forth safe harbors under which
interests will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof) n within the meaning of Section 7704 of the
Code) (the "Safe Harbors"). The General Partner shall take all steps reasonably
necessary or appropriate to prevent any trading of interests or any recognition
by the Partnership of transfers made on such markets and, except as otherwise
provided herein, to insure that at least one of the Safe Harbors is met,
provided, however, that the foregoing shall not authorize the General Partner to
limit or restrict in any manner the right of any holder of a Partnership Unit to
exercise the Redemption Right in accordance with the terms of Section 8.6
unless, and only to the extent that, outside tax counsel provides to the General
Partner an opinion to the effect that, in the absence of such limitation or
restriction, there is a significant risk that the Partnership will be treated as
a "publicly traded partnership" and, by reason thereof, taxable as a
corporation.
ARTICLE XII
ADMISSION OF PARTNERS
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SECTION 12.1 ADMISSION OF A SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner's General Partnership Interest
pursuant to Section 11.2 who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as the General Partner, effective
upon such transfer. Any such transferee shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject
to such successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. General. No Person shall be admitted as an Additional Limited Partner
without the consent of the General Partner, which consent shall be given or
withheld in the General Partner's sole and absolute discretion. A Person who
makes a Capital Contribution to the Partnership in accordance with this
Agreement, including without limitation, under Section 4.1.C, or who exercises
an option to receive Partnership Units shall be admitted to the Partnership as
an Additional Limited Partner only with the consent of the General Partner and
only upon furnishing to the General Partner (i) evidence of acceptance in form
satisfactory to the General Partner of all of the terms and conditions of this
Agreement, including, without limitation, the power of attorney granted in
Section 15.11 and (ii) such other documents or instruments as may be required in
the discretion of the General Partner to effect such Person's admission as an
Additional Limited Partner. The admission of any Person as an Additional
Limited Partner shall become effective on the date upon which the name of such
Person is recorded on the books and records of the Partnership, following the
consent of the General Partner to such admission.
B. Allocations to Additional Limited Partners. If any Additional Limited
Partner is admitted to the Partnership on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items allocable among Partners and Assignees for such Partnership Year shall be
allocated among such Additional Limited Partner and all other Partners and
Assignees by taking into account their varying interests during the Partnership
Year in accordance with Section 706(d) of the Code, using the interim closing of
the books method (unless the General Partner, in its sole and absolute
discretion, elects to adopt a daily, weekly or monthly proration method, in
which event Net Income, Net Losses, and each item thereof would be prorated
based upon the applicable period selected by the General Partner). Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assignees including such Additional Limited
Partner. All distributions of Available Cash with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees other than the Additional Limited Partner, and
all distributions of Available Cash thereafter shall be made to all the Partners
and Assignees including such Additional Limited Partner.
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SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate of
Limited Partnership and may for this purpose exercise the power of attorney
granted pursuant to Section 15.11 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
SECTION 13.1 DISSOLUTION
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Liquidating Events"):
(i) the expiration of its term as provided in Section 2.4 hereof;
(ii) an event of withdrawal of the General Partner, as defined in
the Act (other than an event of bankruptcy), unless (1) there is at least one
other General Partner, in which case the remaining General Partner shall
continue the business of the Partnership, or (2) within ninety (90) days after
the withdrawal a "majority in interest" (as defined below) of the remaining
Partners Consent in writing to continue the business of the Partnership and to
the appointment, effective as of the date of withdrawal, of a substitute General
Partner;
(iii) through December 31, 2048, an election to dissolve the
Partnership made by the General Partner with the consent of Limited Partners who
hold ninety percent (90%) of the outstanding Units held by Limited Partners
(including Units held by the General Partner);
(iv) an election to dissolve the Partnership made by the General
Partner, in its sole and absolute discretion after December 31, 2046;
(v) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
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(vi) the sale of all or substantially all of the assets and
properties of the Partnership for cash or for marketable securities; or
(vii) a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the General Partner, in each case under any
federal or state bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to or at the time of the entry of such order or judgment a
"majority in interest" (as defined below) of the remaining Partners Consent in
writing to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment, of a
substitute General Partner.
As used herein, a "majority in interest" shall refer to Partners (excluding
the General Partner) who hold more than fifty percent (50%) of the outstanding
Percentage Interests not held by the General Partner.
SECTION 13.2 WINDING UP
A. General. Upon the occurrence of a Liquidating Event, the Partnership
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Partners. No Partner shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Partnership's business
and affairs. The General Partner (or, if there is no remaining General Partner,
any Person elected by a majority in interest of the Limited Partners (the
"Liquidation") shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include equity or other securities of the General Partner or any other entity)
shall be applied and distributed in the following orders:
(1) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the Partnership's
debts and liabilities to the Limited Partners; and
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(4) The balance, if any, to the Partners in accordance with their
Capital Accounts, after giving effect to all contributions,
distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of Section
13.2.A which require liquidation of the assets of the Partnership, but subject
to the order of priorities set forth therein, if prior to or upon dissolution of
the Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss to
the Partners, the Liquidator may, in its sole and absolute discretion, defer for
a reasonable time the liquidation of any assets except those necessary to
satisfy liabilities of the Partnership (including to those Partners as
creditors) or distribute to the Partners, in lieu of cash, as tenants in common
and in accordance with the provisions of Section 13.2.A, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS
Subject to Section 13.4, if the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-l(b)(2)(ii)(g), distributions shall be made
under this Article XIII to the General Partner and Limited Partners who have
positive Capital Accounts in compliance with Regulations Section 1.704-
l(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital Account
(after giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which such liquidation occurs), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the discretion of the General Partner, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article XIII may be: (A) distributed to a trust
established for the benefit of the General Partner and Limited Partners for the
purposes of liquidating Partnership assets, collecting amounts owed to the
Partnership and paying any contingent or unforeseen liabilities or obligations
of the Partnership or of the General Partner arising out of or in connection
with the Partnership (in which case the assets of any such trust shall be
distributed to the General Partner and Limited Partners from time to time, in
the reasonable discretion of the General Partner, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise have been
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distributed to the General Partner and Limited Partners pursuant to this
Agreement); or (B) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION
Notwithstanding any other provision of this Article XIII, if the
Partnership is deemed liquidated within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged and the Partnership's affairs shall not be wound up.
Instead, for federal income tax purposes and for purposes of maintaining Capital
Accounts pursuant to Exhibit B, the Partnership shall be deemed to have
distributed its assets in kind to the General Partner and Limited Partners, who
shall be deemed to have assumed and taken such assets subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be deemed
to have recontributed the Partnership assets in kind to the Partnership, which
shall be deemed to have assumed and taken such assets subject to all such
liabilities.
SECTION 13.5 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise expressly provided in
this Agreement, no Limited Partner shall have priority over any other Limited
Partner as to the return of its Capital Contributions, distributions, or
allocations.
SECTION 13.6 NOTICE OF DISSOLUTION
If a Liquidating Event occurs or an event occurs that would, but for
provisions of an election or objection by one or more Partners pursuant to
Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners and to all other parties with whom the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
SECTION 13.7 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership cash and property
as provided in Section 13.2, the Partnership shall be terminated and the
Certificate of Limited Partnership and all qualifications of the Partnership as
a foreign limited partnership in jurisdictions other than the
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State of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
SECTION 13.8 REASONABLE TIME FOR WINDING UP
A reasonable time shall be allowed for the orderly winding up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2, to minimize any losses otherwise attendant upon such
winding-up, and the provisions of this Agreement shall remain in effect among
the Partners during the period of liquidation.
SECTION 13.9 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
SECTION 13.10 LIABILITY OF LIQUIDATOR
The Liquidator shall be indemnified and held harmless by the Partnership in
the same manner and to the same degree as an Indemnitee may be indemnified
pursuant to Section 7.7.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
SECTION 14.1 AMENDMENTS
A. General. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partners holding twenty-five percent (25%) or more of
the Partnership Interests. Following such proposal (except an amendment
pursuant to Section 14.1.B), the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
vote of the Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written vote, the General Partner may require a response
within a reasonable specified time, but not less than fifteen (15) days, and
failure to respond in such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Partners holding
a majority of the Percentage Interests of the Limited Partners (including
Limited Partnership Interests held by the General Partner).
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B. Amendments Not Requiring Limited Partner Approval. Notwithstanding
Section 14.1.A or 14.1.C, the General Partner shall have the power, without the
consent of the Limited Partners, to amend this Agreement as may be required to
facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement (which
may be effected through the replacement of Exhibit A with an
amended Exhibit A);
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership
Interests issued pursuant to Article IV;
(4) to reflect a change that does not adversely affect the Limited
Partners in any material respect, or to cure any ambiguity,
correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions of this Agreement,
or make other changes with respect to matters arising under this
Agreement that will not be inconsistent with law or with the
provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a
federal, state or local agency or contained in federal, state or
local law.
The General Partner shall notify the Limited Partners when any action under
this Section 14.1.B is taken in the next regular communication to the Limited
Partners.
C. Amendments Requiring Limited Partner Approval (Excluding General
Partner). Notwithstanding Section 14.1.A, without the Consent of the Outside
Limited Partners, the General Partner shall not amend Section 4.2.A, Section
5.1.E, Section 7.1.A (second sentence only), Section 7.5, Section 7.6, Section
7.8, Section 7.11.B, Section 11.2, Section 13.1 (other than Section 13.1(iii)
which can be amended only with a Consent of 90% of the Partnership Units
(including Partnership Units held by the General Partner), the last sentence of
Section 11.4 (provided that no such amendment shall in any event adversely
affect the rights of any lender who made a loan or who extended credit and
received in connection therewith a Pledge of Units prior to the date such
amendment is adopted unless, and only to the extent such lender consents
thereto, this Section 14.1.C or Section 14.2.
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D. Other Amendments Requiring Certain Limited Partner Approval.
Notwithstanding anything in this Section 14.1 to the contrary, this Agreement
shall not be amended with respect to any Partner adversely affected without the
Consent of such Partner adversely affected if such amendment would (i) convert a
Limited Partner's interest in the Partnership into a general partner's interest,
(ii) modify the limited liability of a Limited Partner, (iii) amend Section
7.11.A, (iv) amend Article V or Article VI (except as permitted pursuant to
Sections 4.2, 5.1.E, 5.4, 6.2 and 14.1(B)(3)), (v) amend Section 8.6 or any
defined terms set forth in Article I that relate to the Redemption Right (except
as permitted in Section 8.6.E), or (vi) amend this Section 14.1.D. This Section
14.1.D does not require unanimous consent of all Partners adversely affected
unless the amendment is to be effective against all Partners adversely affected.
SECTION 14.2 MEETINGS OF THE PARTNERS
A. General. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners holding twenty-five percent (25%) or more of the
Partnership Interests. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A. Except as otherwise
expressly provided in this Agreement, the Consent of holders of a majority of
the Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the General Partner) shall control.
B. Actions Without a Meeting. Any action required or permitted to be
taken at a meeting of the Partners may be taken without a meeting if a written
consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in
several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Partners (or such other percentage
as is expressly required by this Agreement). Such consent shall be filed with
the General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Proxy. Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Limited Partner executing it,
such revocation to be effective upon the Partnership's receipt of written notice
thereof.
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D. Conduct of Meeting. Each meeting of Partners shall be conducted by
the General Partner or such other Person as the General Partner may appoint
pursuant to such rules for the conduct of the meeting as the General Partner or
such other Person deem appropriate.
ARTICLE XV
GENERAL PROVISIONS
SECTION 15.1 ADDRESSES AND NOTICE
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address as the
Partners shall notify the General Partner in writing.
SECTION 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles", "Sections"
and "Exhibits" are to Articles, Sections and Exhibits of this Agreement.
SECTION 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
SECTION 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
SECTION 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
SECTION 15.6 CREDITORS
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Other than as expressly set forth herein with regard to any Indemnitee,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
SECTION 15.7 WAIVER
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
SECTION 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which together shall
constitute one agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto.
SECTION 15.9 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
SECTION 15.10 INVALIDITY OF PROVISIONS
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
SECTION 15.11 POWER OF ATTORNEY
A. General. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated therewith)
is deemed to irrevocably constitute and appoint the General Partner, any
Liquidator and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement
and the Certificate of Limited Partnership and all amendments or
restatements thereof) that the General Partner or any Liquidator
deems appropriate or necessary to form,
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qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of
Delaware and in all other jurisdictions in which the Partnership
may conduct business or own property, (b) all instruments that
the General Partner or any Liquidator deem appropriate or
necessary to reflect any amendment, change, modification or
restatement of this Agreement in accordance with its terms, (c)
all conveyances and other instruments or documents that the
General Partner or any Liquidator deems appropriate or necessary
to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation, (d) all instruments
relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to, or other events described in, Article
XI, XII or XIII hereof or the Capital Contribution of any Partner
and (e) all certificates, documents and other instruments
relating to the determination of the rights, preferences and
privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of
the General Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other
action which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this Agreement.
Nothing contained in this Section 15.11 shall be construed as authorizing
the General Partner or any Liquidator to amend this Agreement except in
accordance with Article XIV hereof or as may be otherwise expressly provided for
in this Agreement.
B. Irrevocable Nature. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner or any Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby agrees to be bound by any representation made
by the General Partner or any Liquidator, acting in good faith pursuant to such
power of attorney, and each such Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner or any Liquidator, taken in good faith under such
power of attorney. Each
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Limited Partner or Assignee shall execute and deliver to the General Partner or
the Liquidator, within fifteen (15) days after receipt of the General Partner's
or Liquidator's request therefor, such further designation, powers of attorney
and other instruments as the General Partner or the Liquidator, as the case may
be, deems necessary to effectuate this Agreement and the purposes of the
Partnership.
SECTION 15.12 ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes any prior
written oral understandings or agreements among them with respect thereto.
SECTION 15.13 NO RIGHTS AS SHAREHOLDERS
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Partnership Units any rights whatsoever as partners or
shareholders of any of the General Partner, including, without limitation, any
right to receive dividends or other distributions made to shareholders of the
General Partner or partners of the other General Partner or to vote or to
consent or receive notice as (i) shareholders in respect to any meeting of
shareholders for the election of trustees of the General Partner or partners of
the other General Partner or any other matter or (ii) partners in respect to any
meeting of partners of the other General Partner or any other matter.
SECTION 15.14 LIMITATION TO PRESERVE REIT STATUS
To the extent that any amount paid or credited to the General Partner or
any of their officers, directors, trustees, employees or agents pursuant to
Section 7.4 or Section 7.7 would constitute gross income to the General Partner
for purposes of Section 856(c)(2) or 856(c)(3) of the Code (a "General Partner
Payment") then, notwithstanding any other provision of this Agreement, the
amount of such General Partner Payment for any fiscal year shall not exceed the
lesser of:
(i) an amount equal to the excess, if any, of (a) 4.20% of the General
Partner's total gross income (but not including the amount of any General
Partner Payments) for the fiscal year which is described in subsections (A)
though (H) of Section 856(c)(2) of the Code over (b) the amount of gross income
(within the meaning of Section 856(c)(2) of the Code) derived by the General
Partner from sources other than those described in subsections (A) through (H)
of Section 856(c)(2) of the Code (but not including the amount of any General
Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25% of the General
Partner's total gross income (but not including the amount of any General
Partner Payments) for the fiscal
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year which is described in subsections (A) through (I) of Section 856(c)(3) of
the Code over (b) the amount of gross income (within the meaning of Section
856(c)(3) of the Code) derived by the General Partner from sources other than
those described in subsections (A) through (I) of Section 856(c)(3) of the Code
(but not including the amount of any General Partner Payments);
provided, however, that General Partner Payments in excess of the amounts
set forth in subparagraphs (i) and (ii) above may be made if the General
Partner, as a condition precedent, obtains an opinion of tax counsel that the
receipt of such excess amounts would not adversely affect the General Partner's
ability to qualify as a REIT. To the extent General Partner Payments may not be
made in a year due to the foregoing limitations, such General Partner Payments
shall carry over and be treated as arising in the following year, provided,
however, that such amounts shall not carry over for more than five years, and if
not paid within such five year period, shall expire, provided further, that (i)
as General Partner Payments are made, such payments shall be applied first to
carry over amounts outstanding, if any, and (ii) with respect to carry over
amounts for more than one Partnership Year, such payments shall be applied to
the earliest Partnership Year first.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
General Partner:
LaSalle Hotel Properties
By:_______________________________________
Name:_____________________________________
Title:____________________________________
LIMITED PARTNERS:
By: LaSalle Hotel Properties, as Attorney-in-Fact for
the Limited Partners
By:__________________________________
Name:________________________________
Title:_______________________________
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EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
Class A Agreed Initial
Name and Address of Partner Partnership Class B Partnership Capital Account Percentage Interest
- --------------------------- ---------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
General Partner:
LaSalle Hotel Properties
220 East 42nd Street
New York, NY 10017
LIMITED PARTNERS: 100.00%
========== =================== =============== ===================
TOTAL
</TABLE>
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1 of the
Agreement and Exhibit C thereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1 of the Agreement and Exhibit C thereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a) (1) of the Code shall be included in taxable income or loss),
with the following adjustments:
(1) Except as otherwise provided in Regulations Section 1.704-
l(b)(2)(iv)(m), the computation of all items of income, gain,
loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the
Partnership, provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made pursuant to
Section 734 of the Code as a result of the distribution of
property by the Partnership to a Partner (to the extent that such
adjustments have not previously been reflected in the Partners'
Capital Accounts) shall be reflected in the Capital Accounts of
the Partners in the manner and subject to the limitations
prescribed in Regulations Section 1.704-l(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction shall
be made without regard to the fact that items described in
Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
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(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition
were equal in amount to the Partnership's Carrying Value with
respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation
for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
(6) Any items specially allocated under Section 2 of Exhibit C hereof
shall not be taken into account.
C. Generally, a transferee (including any Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor,
provided, however, that, if the transfer causes a termination of the Partnership
under Section 708(b)(1)(B) of the Code, the Partnership's properties shall be
deemed, solely for federal income tax purposes, to have been distributed in
liquidation of the Partnership to the holders of the Partnership units
(including the transferee) and recontributed by such Persons in reconstitution
of the Partnership. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed distribution
pursuant to Section 1.D(2) hereof. The Capital Accounts of such reconstituted
Partnership shall be maintained in accordance with the principles of this
Exhibit B.
D. (1) Consistent with the provisions of Regulations Section 1.704-
l(b)(2)(iv)(f), and as provided in Section 1.D(2), the Carrying
Values of all Partnership assets shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the times of the
adjustments provided in Section 1.D(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an
actual sale of each such property and allocated pursuant to
section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (b) immediately
prior to the distribution by the Partnership to a Partner of more
than a de minimis amount of property as consideration for an
interest in the Partnership; and (c) immediately prior to the
liquidation of the Partnership within the meaning of Regulations
B-2
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Section 1.704-l(b)(2)(ii)(g), provided however that adjustments
pursuant to clauses (a) and (b) above shall be made only if the
General Partner determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704- l(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as of
the time any such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes of
this Exhibit B, the aggregate cash amount and fair market value
of all Partnership assets (including cash or cash equivalents)
shall be determined by the General Partner using such reasonable
method of valuation as it may adopt, or in the case of a
liquidating distribution pursuant to Article XIII of the
Agreement, shall be determined and allocated by the Liquidator
using such reasonable methods of valuation as it may adopt. The
General Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the assets of the
Partnership in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for
individual properties.
E. The provisions of the Agreement (including this Exhibit B and the
other Exhibits to the Agreement) relating to the maintenance of Capital Accounts
are intended to comply with Regulations Section 1.704-l(b), and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article XIV of the Agreement, provided that it is not likely
to have a material effect on the amounts distributable to any Person pursuant to
Article XIII of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-l(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
2. No Interest
B-3
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No interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of its Capital
Contribution or Capital Account or to receive any distribution from the
Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
B-4
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EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules.
Notwithstanding any other provision of the Agreement or this Exhibit C, the
following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section
6.1 of the Agreement or any other provisions of this Exhibit C, if there is a
net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This
Section 1.A is intended to comply with the minimum gain chargeback requirements
in Regulations Section 1.704-2(f) and for purposes of this Section 1.A only,
each Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to such
Partnership Year and without regard to any decrease in Partner Minimum Gain
during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision
of Section 6.1 of this Agreement or any other provisions of this Exhibit C
(except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year, each
Partner who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5), shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5). Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to the General Partner and
each Limited Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i) (4). This Section
1.B is intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.B, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of the Agreement or this Exhibit with respect to such Partnership Year,
other than allocations pursuant to Section 1.A hereof.
<PAGE>
C. Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-l(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5), or
1.704l(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 1.A and 1.B hereof with respect to such Partnership Year, such
Partner has an Adjusted Capital Account Deficit, items of Partnership income and
gain (consisting of a pro rata portion of each item of Partnership income,
including gross income and gain for the Partnership Year) shall be specifically
allocated to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, its Adjusted Capital Account Deficit
created by such adjustments, allocations or distributions as quickly as
possible. This Section 1.C is intended to constitute a "qualified income
offset" under Regulations Section 1.704-l(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
D. Gross Income Allocation. In the event that any Partner has an
Adjusted Capital Account Deficit at the end of any Partnership Year (after
taking into account allocations to be made under the preceding paragraphs hereof
with respect to such Partnership Year), each such Partner shall be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit.
E. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
Year shall be allocated to the Partners in accordance with their respective
Percentage Interests. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
F. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Partnership Year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
G. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-l(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
C-2
<PAGE>
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners
consistent with the principles of Section 704(c) of the Code to
take into account the variation between the 704(c) Value of such
property and its adjusted basis at the time of contribution
(taking into account Section 2.C of this Exhibit C); and
(b) any item of Residual Gain or Residual Loss attributable to a
Contributed Property shall be allocated among the Partners in the
same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such items shall
(i) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the Code to
take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof
pursuant to Exhibit B;
(ii) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a manner
consistent with Section 2.B(1) of this Exhibit C; and
(b) any item of Residual Gain or Residual Loss attributable to
an Adjusted Property shall be allocated among the Partners in the
same manner its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(3) all other items of income, gain, loss and deduction shall be
allocated among the Partners the same manner as their correlative item
of "book" gain or loss is allocated pursuant to Section 6.1 of the
Agreement and Section 1 of this Exhibit C.
C-3
<PAGE>
C. To the extent Regulations promulgated pursuant to Section 704(c) of the
Code permit a Partnership to utilize alternative methods to eliminate the
disparities between the Carrying Value of property and its adjusted basis, the
General Partner shall, subject to the following, have the authority to elect the
method to be used by the Partnership and such election shall be binding on all
Partners. With respect to the Contributed Property transferred to the
Partnership in connection with the Consolidation, the Partnership shall elect to
use the "traditional method" set forth in Treasury Regulation Section 1.704-
3(b).
C-4
<PAGE>
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) redeems ______________ Partnership Units
in LaSalle Hotel Operating Partnership, L.P. in accordance with the terms of the
Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P.,
as amended, and the Redemption Right referred to therein, (ii) surrenders such
Partnership Units and all right, title and interest therein and (iii) directs
that the Cash Amount or Shares Amount (as determined by the General Partner)
deliverable upon exercise of the Redemption Right be delivered to the address
specified below, and if Shares are to be delivered, such Shares be registered or
placed in the name(s) and at the address(es) specified below. The undersigned
hereby represents, warrants, and certifies that the undersigned (a) has
marketable and unencumbered title to such Partnership Units, free and clear of
the rights of or interests of any other person or entity, (b) has the full
right, power and authority to redeem and surrender such Partnership Units as
provided herein and (c) has obtained the consent or approval of all persons or
entities, if any, having the right to consult or approve such redemption and
surrender.
Dated:_________ Name of Limited Partner:
------------------------------------
(Signature of Limited Partner)
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------------
IF SHARES ARE TO BE ISSUED, ISSUE TO:
Name:
Please insert social security or identifying number:
<PAGE>
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
UNDERLYING
PROPERTY 704(C) VALUE AGREED VALUE
- ---------- ------------ ------------
<PAGE>
EXHIBIT 10.3
[FORM OF]
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of ____________________, 1998 by and between LaSalle Hotel Properties, a
Maryland real estate investment trust (the "Company"), and the holders of Rights
listed on Schedule A hereto and each of the permitted assignees thereof
----------
(individually, a "Holder").
WHEREAS, on the date hereof, the Holders are receiving rights ("Rights") to
purchase common shares of beneficial interest, par value $.01 per share ("Common
Shares") of the Company;
WHEREAS, in connection therewith, the Company has agreed to grant to
Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
If Holder receives Common Shares upon exercise of the Rights pursuant to
the terms thereof, the Company shall register the Common Shares for sale by the
Holder, subject to the terms and conditions set forth herein (the "Registration
Rights").
1.1 Demand Registration Rights.
---------------------------
1.1(a) Registration Procedure. Subject to Sections 1.1(c) and 1.2
----------------------
hereof, if Holder desires to exercise its Registration Rights with respect to
the Common Shares underlying the Rights, Holder shall deliver to the Company a
written notice (a "Registration Notice") informing the Company of such exercise
and specifying the number of shares to be registered for resale by Holder (such
shares being referred to herein as the "Registrable Securities"). Such notice
may be given at any time on or after the date which is ten (10) business days
prior to the date a notice of exercise is delivered by Holder to the Company
pursuant to the Right, but must be given at least ten (10) business days prior
to the consummation of the sale of Registrable Securities. Upon receipt of the
Registration Notice, the Company, if it has not already caused the Registrable
Securities to be included as part of an existing effective shelf registration
statement and related prospectus (the "Shelf Registration Statement") that the
Company then has on file with the Securities and Exchange Commission and which
is available for use by Holder in connection with the offer and sale of
Registrable Securities (in which event the Company shall be deemed to have
satisfied its registration obligation under this Section 1.1),
1
<PAGE>
will cause to be filed with the Securities and Exchange Commission (the "SEC")
as soon as reasonably practicable (but not later than 30 days) after receiving
the Registration Notice a new registration statement and related prospectus
pursuant to Rule 415 (or any successor provision) under the Securities Act of
1933, as amended (the "Act") (a "New Registration Statement"), that complies as
to form in all material respects with applicable SEC rules providing for the
offer and sale by Holder of the Registrable Securities, and agrees (subject to
Section 1.2 hereof) to use its best efforts to cause such New Registration
Statement to be declared effective by the SEC as soon as practicable. (As used
herein, "Registration Statement" and "Prospectus" refer to the Shelf
Registration Statement and related prospectus (including any preliminary
prospectus and any supplement of any prospectus filed pursuant to Rule 424 or
Rule 430A) or the New Registration Statement and related prospectus (including
any preliminary prospectus and any supplement of any prospectus filed pursuant
to Rule 424 or Rule 430A), whichever is utilized by the Company to satisfy
Holder's Registration Rights pursuant to this Section 1, including in each case
any documents incorporated therein by reference). Holder agrees to provide in a
timely manner information regarding the proposed distribution by Holder of the
Registrable Securities and such other information reasonably requested by the
Company in connection with the preparation of and for inclusion in the
Registration Statement. The Company agrees (subject to Section 1.2 hereof) to
use its best efforts to keep the Registration Statement effective (including the
preparation and filing of any amendments and supplements necessary for that
purpose) until the earlier of (i) the date on which Holder consummates the sale
of all of the Registrable Securities registered under the Registration
Statement, or (ii) the date on which all of the Registrable Securities are
eligible for sale by Holder pursuant to Rule 144(k) (or any successor provision)
or in a single transaction pursuant to Rule 144(e) (or any successor provision)
under the Securities Act of 1933, as amended (the "Act") provided that Rule 144
is then available for offers and sales of the Registrable Securities by Holder.
The Company agrees to provide to Holder a reasonable number of copies of the
final Prospectus and any amendments or supplements thereto.
1.1(b) Offers and Sales. All offers and sales by Holder under the
----------------
Registration Statement referred to in this Section 1.1 shall be completed within
the period during which the Registration Statement is required to remain
effective pursuant to Section 1.1(a), and upon expiration of such period Holder
will not offer or sell any Registrable Securities under the Registration
Statement. If directed by the Company, Holder will return all undistributed
copies of the Prospectus in its possession upon the expiration of such period.
1.1(c) Limitations on Registration Rights. Each exercise of a
----------------------------------
Registration Right shall be with respect to a minimum of the lesser of (i) Fifty
Thousand (50,000) Common Shares or (ii) the total number of Common Shares that
may be issued upon exercise of the Rights held by Holder. The rights of Holder
to deliver a Registration Notice commences upon the date a Holder is permitted
to exercise the Rights pursuant to their terms. The right of Holder to deliver
a Registration Notice shall expire on the date on which all of the Rights then
held by Holder or issuable upon exercise of the Rights held by Holder are
eligible for sale pursuant to Rule 144(k) (or any successor provision). The
Registration Rights granted pursuant to this Section 1.1 may not be exercised in
connection with any underwritten public offering by the Company or by Holder
without the prior written consent of the Company.
2
<PAGE>
1.2 Suspension of Offering. Upon receipt of notice from the Company,
----------------------
either before or after a Holder has delivered a Registration Notice, that a
negotiation or consummation of a transaction by the Company or its subsidiaries
is pending or an event has occurred, which negotiation, consummation or event
would require additional disclosure by the Company in the Registration Statement
of material information which the Company has a bona fide business purpose for
---- ----
keeping confidential and the nondisclosure of which in the Registration
Statement would, in the reasonable opinion of counsel to the Company, cause the
Registration Statement to fail to comply with applicable disclosure requirements
(a "Materiality Notice"), Holder agrees that it will immediately discontinue
offers and sales of the Registrable Securities under the Registration Statement
until Holder receives copies of a supplemented or amended Prospectus that
corrects the misstatement(s) or omission(s) referred to above; provided, that
--------
the Company may require the Holder to suspend such offers and sales for such
reason for no more than sixty (60) days after delivery of the Materiality Notice
at any one time (the "Suspension Period"). If so directed by the Company,
Holder will deliver to the Company all copies of the Prospectus covering the
Registrable Securities current at the time of receipt of such notice. The
Company shall take all actions necessary (including the preparation of any
amendment to the Registration Statement or supplement to the Prospectus such
that immediately following the earlier of (i) the public disclosure of the
information giving rise to such Materiality Notice or (ii) the end of the
Suspension Period, the Registration Statement is available for offers and sales
of the Registrable Securities.
1.3 Expenses. The Company shall pay all expenses incident to the
--------
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration, listing
and filing fees, (ii) all expenses incurred in connection with the preparation,
printing and distributing of the Registration Statement and Prospectus, and
(iii) fees and disbursements of counsel for the Company and of the independent
public accountants of the Company. Holder shall be responsible for the payment
of any brokerage and sales commissions, fees and disbursements of Holder's
counsel, and any transfer taxes relating to the sale or disposition of the
Registrable Securities by Holder.
1.4 Qualification. The Company agrees to use its best efforts to register
-------------
or qualify the Registrable Securities by the time the applicable Registration
Statement is declared effective by the SEC under all applicable state securities
or "blue sky" laws of such jurisdictions as Holder shall reasonably request in
writing, to keep each such registration or qualification effective during the
period such Registration Statement is required to be kept effective or during
the period offers or sales are being made by Holder after delivery of a
Registration Notice to the Company, whichever is shorter, and to do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder to consummate the disposition in each such jurisdiction of the
Registrable Securities owned by Holder; provided, however, that the Company
-------- -------
shall not be required to (x) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not otherwise be required to qualify but for this Section 1.1, (y) subject
itself to taxation in any such jurisdiction, or (z) submit to the general
service of process in any such jurisdiction.
3
<PAGE>
2. INDEMNIFICATION
2.1 Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless each Holder and each person, if any, who controls any Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
pursuant to which the Registrable Securities were registered under the
Act, including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading or any violation by the Company
of the Act, the Exchange Act or any state securities laws applicable
to the Company and relating to any action or inaction required of the
Company in connection with the registration or qualification of the
Registrable Securities.
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company which shall not be
unreasonably withheld or delayed or otherwise in accordance with (S)
2.3; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, in each case whether or not a party,
or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (a) or (b)
above;
provided, however, that the indemnity provided pursuant to this Section 2.1 does
- -------- -------
not apply to any Holder with respect to any loss, liability, claim, damage or
expense to the extent arising out of
4
<PAGE>
(i) any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with written information furnished to
the Company by such Holder expressly for use in the Registration Statement (or
any amendment thereto) or the Prospectus (or any amendment or supplement
thereto), or (ii) such Holder's failure to deliver an amended or supplemented
Prospectus if such loss, liability, claim, damage or expense would not have
arisen had such delivery occurred and the Company had previously provided to the
Holder such amended or supplemental Prospectus for use in connection with the
offer and sale of the Registrable Securities.
2.2 Indemnification by Holder. Holder (and each permitted assignee
-------------------------
of Holder, on a several basis) agrees to indemnify and hold harmless the
Company, and each of its trustees and officers (including each trustee and
officer of the Company who signed a Registration Statement), and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
pursuant to which the Registrable Securities were registered under the
Securities Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any Prospectus (or any amendment or supplement thereto, including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of Holder which shall not be
unreasonably withheld or delayed or otherwise in accordance with (S)
2.3; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, in each case whether or not a party,
or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
5
<PAGE>
to the extent that any such expense is not paid under subparagraph (a)
or (b) above;
provided, however, that the indemnity provided pursuant to this Section 2.1
- -------- -------
shall only apply with respect to any loss, liability, claim, damage or expense
to the extent arising out of (i) any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by Holder expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto), or (ii) Holder's failure to deliver an amended
or supplemental Prospectus if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred and the Company had previously
provided to the Holder such amended or supplemented Prospectus for use in
connection with the offer and sale of the Registrable Securities.
Notwithstanding the provisions of this Section 2.2, Holder and any permitted
assignee shall not be required to indemnify the Company, its officers, trustees
or control persons with respect to any aggregate amount in excess of the amount
of the total proceeds received by Holder or such permitted assignee, as the case
may be, from sales of the Registrable Securities of Holder giving rise to such
indemnification obligation, and no Holder shall be liable under this Section 2.2
for any statements or omissions of any other Holder.
2.3 Conduct of Indemnification Proceedings. The indemnified party
--------------------------------------
shall give reasonably prompt notice to the indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity agreement provided
in Section 2.1 or 2.2 above, unless and to the extent it did not otherwise learn
of such action and the lack of notice by the indemnified party results in the
forfeiture by the indemnifying party of substantial rights and defenses, and
(ii) shall not, in any event, relieve the indemnifying party from any
obligations to the indemnified party other than the indemnification obligation
provided under Section 2.1 or 2.2 above. If the indemnifying party so elects
within a reasonable time after receipt of such notice, the indemnifying party
may assume the defense of such action or proceeding at such indemnifying party's
own expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
--------
however, that the indemnifying party will not settle any such action or
- -------
proceeding without the written consent of the indemnified party which shall not
be unreasonably withheld or delayed unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and provided further, that if the indemnified party reasonably determines
-------- -------
that a conflict of interest exists where it is advisable for the indemnified
party to be represented by separate counsel or that, upon advice of counsel,
there may be legal defenses available to it which are different from or in
addition to those available to the indemnifying party, then the indemnifying
party shall not be entitled to assume such defense and the indemnified party
shall be entitled to separate counsel at the indemnifying party's expense. If
the indemnifying party is not entitled to assume the defense of such action or
proceeding as a result of the proviso to the preceding sentence, the
indemnifying party's counsel shall be entitled to conduct the indemnifying
party's defense and counsel for the indemnified party shall be entitled to
conduct the defense of the indemnified party, it being understood that
6
<PAGE>
both such counsel will cooperate with each other to conduct the defense of such
action or proceeding as efficiently as possible. If the indemnifying party is
not so entitled to assume the defense of such action or does not assume such
defense, after having received the notice referred to in the first sentence of
this paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the indemnifying
party will not be liable for any settlement effected without the written consent
of the indemnifying party which shall not be unreasonably withheld or delayed.
If an indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
party incurred thereafter in connection with such action or proceeding.
2.4 Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms or is otherwise
unavailable to the indemnified party, the Company and Holder shall contribute to
the aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and Holder, (i)
in such proportion as is appropriate to reflect the relative fault of the
Company on the one hand and Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative fault of but also the relative benefits to the
Company on the one hand and Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits to the indemnifying party and indemnified party shall be
determined by reference to, among other things, the total proceeds received by
the indemnifying party and indemnified party in connection with the offering to
which such losses, claims, damages, liabilities or expenses relate. The
relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.4, Holder shall not be required
to contribute any amount in excess of the amount of the total proceeds received
by Holder from sales of the Registrable Securities, giving rise to such
contribution obligation.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from
7
<PAGE>
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 2.4, each person, if any, who controls Holder within
the meaning of Section 15 of the Act shall have the same rights to contribution
as Holder, and each trustee of the Company, each officer of the Company who
signed a Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will use its best efforts to timely
file the reports required to be filed by the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended, so as to enable each Holder
to sell Registrable Securities pursuant to Rule 144 under the Securities Act. In
connection with any sale, transfer or other disposition by Holder of any
Registrable Securities pursuant to Rule 144 under the Securities Act, the
Company shall cooperate with Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any Securities Act legend, and enable certificates for such Registrable
Securities to be for such number of shares and registered in such names as
Holder may reasonably request at least ten (10) business days prior to any sale
of Registrable Securities hereunder.
SECTION 4. MISCELLANEOUS
4.1 Integration; Amendment. This Agreement constitutes the entire
----------------------
agreement among the parties hereto with respect to the matters set forth herein
and supersedes and renders of no force and effect all prior oral or written
agreements, commitments and understandings among the parties with respect to the
matters set forth herein. Except as otherwise expressly provided in this
Agreement, no amendment, modification or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the Company
and Holder.
4.2 Waivers. No waiver by a party hereto shall be effective unless
-------
made in a written instrument duly executed by the party against whom such waiver
is sought to be enforced, and only to the extent set forth in such instrument.
Neither the waiver by any of the parties hereto of a breach or a default under
any of the provisions of this Agreement, nor the failure of any of the parties,
on one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any such provisions, rights or privileges hereunder.
4.3 Assignment; Successors and Assigns. This Agreement and the
----------------------------------
rights granted hereunder may not be assigned by Holder without the written
consent of the Company; provided, however, that Holder may assign in part or in
-------- -------
whole its rights and obligations hereunder, following at least ten (10) days
prior written notice to the Company, (i) to Holder's direct or indirect partners
or beneficiaries in connection with a distribution of the Rights to its direct
or indirect partners or beneficiaries or to executives or employees, provided
such proposed
8
<PAGE>
assignees are then Accredited Investors as such term is defined in Regulation D
under the Securities Act, (ii) to a permitted transferee in connection with a
transfer of the Rights in accordance with the terms of the Rights, and (iii) to
a third party in connection with a transfer of Rights as security for or in
satisfaction of obligations of any partner of Holder, if in the case of (i),
(ii) and (iii) above, such persons or such third party agree in writing to be
bound by all of the provisions hereof. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of all of the
parties hereto.
4.4 Burden and Benefit. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and, subject to
Section 4.3 above, assigns.
4.5 Notices. All notices called for under this Agreement shall be in
-------
writing and shall be deemed given upon receipt if delivered personally or by
facsimile transmission and followed promptly by mail, or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the addresses set forth opposite their names in Schedule A hereto, or to any
----------
other address or addressee as any party entitled to receive notice under this
Agreement shall designate, from time to time, to others in the manner provided
in this Section 4.5 for the service of notices; provided, however, that notices
-------- -------
of a change of address shall be effective only upon receipt thereof. Any notice
delivered to the party hereto to whom it is addressed shall be deemed to have
been given and received on the day it was received; provided, however, that if
-------- -------
such day is not a business day then the notice shall be deemed to have been
given and received on the business day next following such day. Any notice sent
by facsimile transmission shall be deemed to have been given and received on the
business day next following the transmission.
4.6 Specific Performance. The parties hereto acknowledge that the
--------------------
obligations undertaken by them hereunder are unique and that there would be no
adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.
4.7 Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of New York, but not
including the choice of law rules thereof.
4.8 Headings. Section and subsection headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement
9
<PAGE>
for any purpose, and shall not in any way define or affect the meaning,
construction or scope of any of the provisions hereof.
4.9 Pronouns. All pronouns and any variations thereof shall be
--------
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or entity may require.
4.10 Execution in Counterparts. To facilitate execution, this
-------------------------
Agreement may be executed in as many counterparts as may be required. It shall
not be necessary that the signature of or on behalf of each party appears on
each counterpart, but it shall be sufficient that the signature of or on behalf
of each party appears on one or more of the counterparts. All counterparts
shall collectively constitute a single agreement. It shall not be necessary in
any proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
Parties.
4.11 Severability. If fulfillment of any provision of this Agreement,
------------
at the time such fulfillment shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein contained, and the remainder of this Agreement shall remain operative
and in full force and effect.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: LaSalle Hotel Properties
220 East 42nd Street
New York, New York 10017
By:
------------------------------
HOLDERS:
11
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Schedule A
----------
Holder Number of Rights
------ ----------------
12
<PAGE>
EXHIBIT 10.4
[FORM OF]
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of by and between LaSalle Hotel Properties, a
Maryland real estate investment trust (the "Company"), and the holders of Units
listed on Schedule A hereto and each of the permitted assignees thereof
----------
(individually, a "Holder").
WHEREAS, on the date hereof, the Holders are receiving units of limited
partnership interest ("Units") in LaSalle Hotel Operating Partnership, L.P.
(the "Partnership");
WHEREAS, in connection therewith, the Company has agreed to grant to
Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
If Holder receives common shares of beneficial interests ("Common Shares")
of the Company upon redemption of Units (the "Redemption Shares") pursuant to
the terms of the agreement of limited partnership of the Partnership, as amended
(the "Partnership Agreement"), the Company shall register the Redemption Shares
for sale by the Holder, subject to the terms and conditions set forth herein
(the "Registration Rights").
1.1 Demand Registration Rights.
---------------------------
1.1(a) Registration Procedure. Subject to Sections 1.1(c) and 1.2
----------------------
hereof, if Holder desires to exercise its Registration Rights with respect to
the Redemption Shares, Holder shall deliver to the Company a written notice (a
"Registration Notice") informing the Company of such exercise and specifying the
number of shares to be registered for resale by Holder (such shares being
referred to herein as the "Registrable Securities"). Such notice may be given at
any time on or after the date a notice of redemption is delivered by Holder to
the Partnership pursuant to the Partnership Agreement, but must be given at
least ten (10) business days prior to the consummation of the sale of
Registrable Securities. Upon receipt of the Registration Notice, the Company, if
it has not already caused the Registrable Securities to be included as part of
an existing effective shelf registration statement and related prospectus (the
"Shelf Registration Statement") that the Company then has on file with the
Securities and Exchange Commission and which is available for use by Holder in
connection with the offer and sale of Registrable Securities (in which event the
Company shall be deemed to have satisfied its registration obligation under this
Section 1.1), will cause to be filed with the Securities and Exchange Commission
(the "SEC") as soon as reasonably practicable (but no later than 30 days) after
receiving the Registration Notice a new registration statement and related
prospectus pursuant to
1
<PAGE>
Rule 415 (or any successor provision) under the Securities Act of 1933, as
amended (the "Act") (a "New Registration Statement"), that complies as to form
in all material respects with applicable SEC rules providing for the offer and
sale by Holder of the Registrable Securities, and agrees (subject to Section 1.2
hereof) to use its best efforts to cause such New Registration Statement to be
declared effective by the SEC as soon as practicable. (As used herein,
"Registration Statement" and "Prospectus" refer to the Shelf Registration
Statement and related prospectus (including any preliminary prospectus and any
supplement of any prospectus filed pursuant to Rule 424 or Rule 430A) or the New
Registration Statement and related prospectus (including any preliminary
prospectus and any supplement of any prospectus filed pursuant to Rule 424 or
Rule 430A), whichever is utilized by the Company to satisfy Holder's
Registration Rights pursuant to this Section 1, including in each case any
documents incorporated therein by reference). Holder agrees to provide in a
timely manner information regarding the proposed distribution by Holder of the
Registrable Securities and such other information reasonably requested by the
Company in connection with the preparation of and for inclusion in the
Registration Statement. The Company agrees (subject to Section 1.2 hereof) to
use its best efforts to keep the Registration Statement effective (including the
preparation and filing of any amendments and supplements necessary for that
purpose) until the earlier of (i) the date on which Holder consummates the sale
of all of the Registrable Securities registered under the Registration
Statement, or (ii) the date on which all of the Registrable Securities are
eligible for sale by Holder pursuant to Rule 144(k) (or any successor provision)
or in a single transaction pursuant to Rule 144(e) (or any successor provision)
under the Securities Act of 1933, as amended (the "Act") provided that Rule 144
is then available for offers and sales of the Registrable Securities by Holder.
The Company agrees to provide to Holder a reasonable number of copies of the
final Prospectus and any amendments or supplements thereto.
1.1(b) Offers and Sales. All offers and sales by Holder under the
----------------
Registration Statement referred to in this Section 1.1 shall be completed within
the period during which the Registration Statement is required to remain
effective pursuant to Section 1.1(a), and upon expiration of such period Holder
will not offer or sell any Registrable Securities under the Registration
Statement. If directed by the Company, Holder will return all undistributed
copies of the Prospectus in its possession upon the expiration of such period.
1.1(c) Limitations on Registration Rights. Each exercise of a
----------------------------------
Registration Right shall be with respect to a minimum of the lesser of (i) Fifty
Thousand (50,000) Common Shares or (ii) the total number of Redemption Shares
held by Holder at such time plus the number of Redemption Shares that may be
issued upon redemption of Units then held by Holder. The right of Holder to
deliver a Registration Notice commences upon the date a Holder is permitted to
redeem Units pursuant to the Partnership Agreement. The right of Holder to
deliver a Registration Notice shall expire on the date on which all of the
Redemption Shares held by Holder or issuable upon redemption of Units held by
Holder are eligible for sale pursuant to Rule 144(k) (or any successor
provision). The Registration Rights granted pursuant to this Section 1.1 may
not be exercised in connection with any underwritten public offering by the
Company or by Holder without the prior written consent of the Company.
2
<PAGE>
1.2 Suspension of Offering. Upon receipt of notice from the Company,
----------------------
either before or after a Holder has delivered a Registration Notice, that a
negotiation or consummation of a transaction by the Company or its subsidiaries
is pending or an event has occurred, which negotiation, consummation or event
would require additional disclosure by the Company in the Registration Statement
of material information which the Company has a bona fide business purpose for
---- ----
keeping confidential and the nondisclosure of which in the Registration
Statement would, in the reasonable opinion of counsel to the Company, cause the
Registration Statement to fail to comply with applicable disclosure requirements
(a "Materiality Notice"), Holder agrees that it will immediately discontinue
offers and sales of the Registrable Securities under the Registration Statement
until Holder receives copies of a supplemented or amended Prospectus that
corrects the misstatement(s) or omission(s) referred to above; provided, that
--------
the Company may require the Holder to suspend such offers and sales for such
reason for no more than sixty (60) days after delivery of the Materiality Notice
at any one time (the "Suspension Period"). If so directed by the Company,
Holder will deliver to the Company all copies of the Prospectus covering the
Registrable Securities current at the time of receipt of such notice. The
Company shall take all actions necessary (including the preparation of any
amendment to the Registration Statement or supplement to the Prospectus such
that immediately following the earlier of (i) the public disclosure of the
information giving rise to such Materiality Notice or (ii) the end of the
Suspension Period, the Registration Statement is available for offers and sales
of the Registrable Securities.
1.3 Expenses. The Company shall pay all expenses incident to the
--------
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration, listing
and filing fees, (ii) all expenses incurred in connection with the preparation,
printing and distributing of the Registration Statement and Prospectus, and
(iii) fees and disbursements of counsel for the Company and of the independent
public accountants of the Company. Holder shall be responsible for the payment
of any brokerage and sales commissions, fees and disbursements of Holder's
counsel, and any transfer taxes relating to the sale or disposition of the
Registrable Securities by Holder.
1.4 Qualification. The Company agrees to use its best efforts to register
-------------
or qualify the Registrable Securities by the time the applicable Registration
Statement is declared effective by the SEC under all applicable state securities
or "blue sky" laws of such jurisdictions as Holder shall reasonably request in
writing, to keep each such registration or qualification effective during the
period such Registration Statement is required to be kept effective or during
the period offers or sales are being made by Holder after delivery of a
Registration Notice to the Company, whichever is shorter, and to do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder to consummate the disposition in each such jurisdiction of the
Registrable Securities owned by Holder; provided, however, that the Company
-------- -------
shall not be required to (x) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not otherwise be required to qualify but for this Section 1.1, (y) subject
itself to taxation in any such jurisdiction, or (z) submit to the general
service of process in any such jurisdiction.
3
<PAGE>
2. INDEMNIFICATION; PARTNERSHIP
2.1 Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless each Holder and each person, if any, who controls any Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
pursuant to which the Registrable Securities were registered under the
Act, including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading or any violation by the Company
of the Act, the Exchange Act or any state securities laws applicable
to the Company and relating to any action or inaction required of the
Company in connection with the registration or qualification of the
Registrable Securities.
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company which shall not be
unreasonably withheld or delayed or otherwise in accordance with (S)
2.3; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, in each case whether or not a party,
or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (a) or (b)
above;
provided, however, that the indemnity provided pursuant to this Section 2.1 does
- -------- -------
not apply to any Holder with respect to any loss, liability, claim, damage or
expense to the extent arising out of
4
<PAGE>
(i) any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with written information furnished to
the Company by such Holder expressly for use in the Registration Statement (or
any amendment thereto) or the Prospectus (or any amendment or supplement
thereto), or (ii) such Holder's failure to deliver an amended or supplemented
Prospectus if such loss, liability, claim, damage or expense would not have
arisen had such delivery occurred and the Company had previously provided to the
Holder such amended or supplemental Prospectus for use in connection with the
offer and sale of the Registrable Securities.
2.2 Indemnification by Holder. Holder (and each permitted assignee
-------------------------
of Holder, on a several basis) agrees to indemnify and hold harmless the
Company, and each of its directors and officers (including each director and
officer of the Company who signed a Registration Statement), and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
pursuant to which the Registrable Securities were registered under the
Securities Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any Prospectus (or any amendment or supplement thereto, including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of Holder which shall not be
unreasonably withheld or delayed or otherwise in accordance with (S)
2.3; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, in each case whether or not a party,
or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
5
<PAGE>
to the extent that any such expense is not paid under subparagraph (a)
or (b) above;
provided, however, that the indemnity provided pursuant to this Section 2.1
- -------- -------
shall only apply with respect to any loss, liability, claim, damage or expense
to the extent arising out of (i) any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by Holder expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto), or (ii) Holder's failure to deliver an amended
or supplemental Prospectus if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred and the Company had previously
provided to the Holder such amended or supplemented Prospectus for use in
connection with the offer and sale of the Registrable Securities.
Notwithstanding the provisions of this Section 2.2, Holder and any permitted
assignee shall not be required to indemnify the Company, its officers, directors
or control persons with respect to any aggregate amount in excess of the amount
of the total proceeds received by Holder or such permitted assignee, as the case
may be, from sales of the Registrable Securities of Holder giving rise to such
indemnification obligation, and no Holder shall be liable under this Section 2.2
for any statements or omissions of any other Holder.
2.3 Conduct of Indemnification Proceedings. The indemnified party
--------------------------------------
shall give reasonably prompt notice to the indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity agreement provided
in Section 2.1 or 2.2 above, unless and to the extent it did not otherwise learn
of such action and the lack of notice by the indemnified party results in the
forfeiture by the indemnifying party of substantial rights and defenses, and
(ii) shall not, in any event, relieve the indemnifying party from any
obligations to the indemnified party other than the indemnification obligation
provided under Section 2.1 or 2.2 above. If the indemnifying party so elects
within a reasonable time after receipt of such notice, the indemnifying party
may assume the defense of such action or proceeding at such indemnifying party's
own expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
--------
however, that the indemnifying party will not settle any such action or
- -------
proceeding without the written consent of the indemnified party which shall not
be unreasonably withheld or delayed unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and provided further, that if the indemnified party reasonably determines
-------- -------
that a conflict of interest exists where it is advisable for the indemnified
party to be represented by separate counsel or that, upon advice of counsel,
there may be legal defenses available to it which are different from or in
addition to those available to the indemnifying party, then the indemnifying
party shall not be entitled to assume such defense and the indemnified party
shall be entitled to separate counsel at the indemnifying party's expense. If
the indemnifying party is not entitled to assume the defense of such action or
proceeding as a result of the proviso to the preceding sentence, the
indemnifying party's counsel shall be entitled to conduct the indemnifying
party's defense and counsel for the indemnified party shall be entitled to
conduct the defense of the indemnified party, it being understood that
6
<PAGE>
both such counsel will cooperate with each other to conduct the defense of such
action or proceeding as efficiently as possible. If the indemnifying party is
not so entitled to assume the defense of such action or does not assume such
defense, after having received the notice referred to in the first sentence of
this paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the indemnifying
party will not be liable for any settlement effected without the written consent
of the indemnifying party which shall not be unreasonably withheld or delayed.
If an indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
party incurred thereafter in connection with such action or proceeding.
2.4 Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms or is otherwise
unavailable to the indemnified party, the Company and Holder shall contribute to
the aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and Holder, (i)
in such proportion as is appropriate to reflect the relative fault of the
Company on the one hand and Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative fault of but also the relative benefits to the
Company on the one hand and Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits to the indemnifying party and indemnified party shall be
determined by reference to, among other things, the total proceeds received by
the indemnifying party and indemnified party in connection with the offering to
which such losses, claims, damages, liabilities or expenses relate. The
relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.4, Holder shall not be required
to contribute any amount in excess of the amount of the total proceeds received
by Holder from sales of the Registrable Securities, giving rise to such
contribution obligation.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from
7
<PAGE>
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 2.4, each person, if any, who controls Holder within
the meaning of Section 15 of the Act shall have the same rights to contribution
as Holder, and each director of the Company, each officer of the Company who
signed a Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will use its best efforts to timely file
the reports required to be filed by the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended, so as to enable each Holder to sell
Registrable Securities pursuant to Rule 144 under the Securities Act. In
connection with any sale, transfer or other disposition by Holder of any
Registrable Securities pursuant to Rule 144 under the Securities Act, the
Company shall cooperate with Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any Securities Act legend, and enable certificates for such Registrable
Securities to be for such number of shares and registered in such names as
Holder may reasonably request at least ten (10) business days prior to any sale
of Registrable Securities hereunder.
SECTION 4. MISCELLANEOUS
4.1 Integration; Amendment. This Agreement constitutes the entire
----------------------
agreement among the parties hereto with respect to the matters set forth herein
and supersedes and renders of no force and effect all prior oral or written
agreements, commitments and understandings among the parties with respect to the
matters set forth herein. Except as otherwise expressly provided in this
Agreement, no amendment, modification or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the Company
and Holder.
4.2 Waivers. No waiver by a party hereto shall be effective unless
-------
made in a written instrument duly executed by the party against whom such waiver
is sought to be enforced, and only to the extent set forth in such instrument.
Neither the waiver by any of the parties hereto of a breach or a default under
any of the provisions of this Agreement, nor the failure of any of the parties,
on one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any such provisions, rights or privileges hereunder.
4.3 Assignment; Successors and Assigns. This Agreement and the
----------------------------------
rights granted hereunder may not be assigned by Holder without the written
consent of the Company; provided, however, that Holder may assign in part or in
-------- -------
whole its rights and obligations hereunder, following at least ten (10) days
prior written notice to the Company, (i) to Holder's direct or indirect partners
or beneficiaries in connection with a distribution of the Rights to its direct
or indirect partners or beneficiaries or to executives or employees, provided
such proposed
8
<PAGE>
assignees are then Accredited Investors as such term is defined in Regulation D
under the Securities Act, (ii) to a permitted transferee in connection with a
transfer of the Units in accordance with the terms of the Partnership Agreement,
and (iii) to a third party in connection with a transfer of Units as security
for or in satisfaction of obligations of any partner of Holder, if in the case
of (i), (ii) and (iii) above, such persons or such third party agree in writing
to be bound by all of the provisions hereof. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of all of
the parties hereto.
4.4 Burden and Benefit. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and, subject to
Section 4.3 above, assigns.
4.5 Notices. All notices called for under this Agreement shall be in
-------
writing and shall be deemed given upon receipt if delivered personally or by
facsimile transmission and followed promptly by mail, or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the addresses set forth opposite their names in Schedule A hereto, or to any
----------
other address or addressee as any party entitled to receive notice under this
Agreement shall designate, from time to time, to others in the manner provided
in this Section 4.5 for the service of notices; provided, however, that notices
-------- -------
of a change of address shall be effective only upon receipt thereof. Any notice
delivered to the party hereto to whom it is addressed shall be deemed to have
been given and received on the day it was received; provided, however, that if
-------- -------
such day is not a business day then the notice shall be deemed to have been
given and received on the business day next following such day. Any notice sent
by facsimile transmission shall be deemed to have been given and received on the
business day next following the transmission.
4.6 Specific Performance. The parties hereto acknowledge that the
--------------------
obligations undertaken by them hereunder are unique and that there would be no
adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.
4.7 Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of New York, but not
including the choice of law rules thereof.
4.8 Headings. Section and subsection headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement
9
<PAGE>
for any purpose, and shall not in any way define or affect the meaning,
construction or scope of any of the provisions hereof.
4.9 Pronouns. All pronouns and any variations thereof shall be
--------
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or entity may require.
4.10 Execution in Counterparts. To facilitate execution, this
-------------------------
Agreement may be executed in as many counterparts as may be required. It shall
not be necessary that the signature of or on behalf of each party appears on
each counterpart, but it shall be sufficient that the signature of or on behalf
of each party appears on one or more of the counterparts. All counterparts
shall collectively constitute a single agreement. It shall not be necessary in
any proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
Parties.
4.11 Severability. If fulfillment of any provision of this Agreement,
------------
at the time such fulfillment shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein contained, and the remainder of this Agreement shall remain operative
and in full force and effect.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: LaSalle Hotel Properties
220 East 42nd Street
New York, New York 10017
By:____________________________
HOLDERS:
11
<PAGE>
Schedule A
----------
Holder Number of Units
------ ---------------
12
<PAGE>
EXHIBIT 10.5
LASALLE HOTEL PROPERTIES
EQUITY INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to attract and retain qualified
key employees of, and consultants and other service providers to, LaSalle Hotel
Properties (the "Company"), its Subsidiaries (if any) and its Advisors, and to
provide such persons with appropriate incentives. The Company has adopted the
Plan effective as of May __, 1998, subject to the approval of the Company's
shareholders, and unless extended by amendment in accordance with the terms of
the Plan, no Option Rights, Appreciation Rights or Restricted Shares will be
granted hereunder after the tenth anniversary of such effective date.
2. Definitions. As used in this Plan,
"Advisor" means LaSalle Hotel Advisors, Inc. and any successor or
other entity that provides asset management and advisory services to the Company
for a fee.
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan, including a Free-standing Appreciation Right and a Tandem
Appreciation Right.
"Base Price" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-standing Appreciation Right.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" means the Compensation Committee of the Board of
Directors, as described in Section 12(a) of this Plan, or, in the absence of a
Compensation Committee, the full Board.
"Common Shares" means (i) shares of the Common Shares of
Beneficial Interest of the Company and (ii) any security into which Common
Shares may be converted by reason of any transaction or event of the type
referred to in Section 8 of this Plan.
"Date of Grant" means the date specified by the Committee on
which a grant of Option Rights or Appreciation Rights or a grant or sale of
Restricted Shares shall become effective, which shall not be earlier than the
date on which the Committee takes action with respect thereto.
"Free-standing Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is not granted in tandem with an
Option Right or similar right.
"Incentive Stock Option" means an Option Right that is
intended to qualify as an "incentive stock option" under Section 422 of the Code
or any successor provision thereto.
<PAGE>
"Market Value per Share" means the fair market value of the Common
Shares as determined by the Committee from time to time.
"Nonqualified Option" means an Option Right that is not intended to
qualify as a Tax-qualified Option.
"Optionee" means the person so designated in an agreement evidencing
an outstanding Option Right.
"Option Price" means the purchase price payable upon the exercise of
an Option Right .
"Option Right" means the right to purchase Common Shares from the
Company upon the exercise of a Nonqualified Option or a Tax-qualified Option
granted pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Committee (or
its delegate) to receive benefits under this Plan and (i) is at that time a key
employee of, or a consultant or service provider to, the Company, any Subsidiary
or any Advisor, or (ii) has agreed to commence serving in any such capacity.
"Reload Option Rights" means additional Option Rights automatically
granted to an Optionee upon the exercise of Option Rights pursuant to Section
4(f) of this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the restrictions on transfer referred to in Section 6 hereof has expired.
"Rule 16b-3" means Rule 16b-3, as promulgated and amended from time
to time by the Securities and Exchange Commission under the Securities Exchange
Act of 1934, or any successor rule to the same effect.
"Spread" means, in the case of a Free-standing Appreciation Right,
the amount by which the Market Value per Share on the date when the Appreciation
Right is exercised exceeds the Base Price specified therein or, in the case of a
Tandem Appreciation Right, the amount by which the Market Value per Share on the
date when the Appreciation Right is exercised exceeds the Option Price specified
in the related Option Right.
"Subsidiary" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest; provided, however, that for
purposes of determining whether any person may be a Participant for purposes of
any grant of Incentive Stock Options, "Subsidiary" means any corporation in
which the Company owns or controls directly or indirectly more than 50% of the
total combined voting power represented by all classes of stock issued by such
corporation at the time of the grant.
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<PAGE>
"Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right or any similar right granted under any other plan of the Company.
"Tax-qualified Option" means an Option Right that is intended to
qualify under particular provisions of the Code, including without limitation an
Incentive Stock Option.
3. Shares Available under the Plan.
(a) Subject to adjustment as provided in Section 8 of this
Plan, the number of Common Shares which may be (i) issued or transferred upon
the exercise of Option Rights or Appreciation Rights, or (ii) awarded as
Restricted Shares and released from substantial risk of forfeiture thereof,
shall not in the aggregate exceed ______ Common Shares, which may be Common
Shares of original issuance or Common Shares held in treasury or a combination
thereof. For the purposes of this Section 3(a):
(i) Upon payment in cash of the benefit provided by
any award granted under this Plan, any Common Shares that were covered
by that award shall again be available for issuance or transfer
hereunder.
(ii) Upon the full or partial payment of any Option
Price by the transfer to the Company of Common Shares or upon
satisfaction of tax withholding obligations in connection with any such
exercise or any other payment made or benefit realized under this Plan
by the transfer or relinquishment of Common Shares, there shall be
deemed to have been issued or transferred under this Plan only the net
number of Common Shares actually issued or transferred by the Company
less the number of Common Shares so transferred or relinquished.
(b) Notwithstanding anything in Section 3(a) hereof, or
elsewhere in this Plan, to the contrary, the aggregate number of Common Shares
actually issued or transferred by the Company upon the exercise of Incentive
Stock Options shall not exceed the total number of Common Shares first specified
in Section 3(a) hereof.
(c) Notwithstanding any other provision of this Plan to the
contrary, no Participant shall be granted Option Rights and Appreciation Rights,
in the aggregate, for more than ______ Common Shares during any calendar year,
subject to adjustment as provided in Section 8 of this Plan.
(d) Notwithstanding any other provision of this Plan to the
contrary, no Participant shall be granted Restricted Shares for more than ______
Common Shares during any calendar year, subject to adjustment as provided in
Section 8 of this Plan.
4. Option Rights. The Committee may from time to time authorize
grants to Participants of options to purchase Common Shares upon such terms and
conditions as the Committee may determine in accordance with the following
provisions :
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<PAGE>
(a) Each grant shall specify the number of Common Shares to
which it pertains.
(b) Each grant shall specify an Option Price per Common Share,
which may be equal to or greater or less than the Market Value per Share on the
Date of Grant.
(c) Each grant shall specify the form of consideration to be
paid in satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check or
other cash equivalent acceptable to the Company, (ii) nonforfeitable,
unrestricted Common Shares, which are already owned by the Optionee, (iii) any
other legal consideration that the Committee may deem appropriate, including
without limitation any form of consideration authorized under Section 4(d)
below, on such basis as the Committee may determine in accordance with this Plan
and (iv) any combination of the foregoing.
(d) Any grant of a Nonqualified Option may provide that
payment of the Option Price may also be made in whole or in part in the form of
Restricted Shares or other Common Shares that are subject to risk of forfeiture
or restrictions on transfer. Unless otherwise determined by the Committee on or
after the Date of Grant, whenever any Option Price is paid in whole or in part
by means of any of the forms of consideration specified in this Section 4(d),
the Common Shares received by the Optionee upon the exercise of the Nonqualified
Option shall be subject to the same risks of forfeiture or restrictions on
transfer as those that applied to the consideration surrendered by the Optionee;
provided, however, that such risks of forfeiture and restrictions on transfer
shall apply only to the same number of Common Shares received by the Optionee as
applied to the forfeitable or restricted Common Shares surrendered by the
Optionee.
(e) Any grant may, if there is then a public market for the
Common Shares, provide for deferred payment of the Option Price from the
proceeds of sale through a broker of some or all of the Common Shares to which
the exercise relates.
(f) Any grant may provide for the automatic grant to the
Optionee of Reload Option Rights upon the exercise of Option Rights, including
Reload Option Rights, for Common Shares or any other noncash consideration
authorized under Sections 4(c) and (d) above; provided, however, that the term
of any Reload Option Right shall not extend beyond the term of the Option Right
originally exercised.
(g) Notwithstanding any provision of this Plan to the
contrary, when granting Option Rights with respect to the employees of, or
consultants to, an Advisor, the Committee may (i) make individual grants to each
such employee and consultant, and/or (ii) make aggregate grants to such Advisor
and delegate to the compensation committee, board of directors, general partner
or other appropriate management representative of the Advisor the authority to
determine the specific allocation and recipients of such grants.
(h) Successive grants may be made to the same Optionee
regardless of whether any Option Rights previously granted to the Optionee
remain unexercised.
(i) Each grant shall specify the period or periods of
continuous employment of, or continuous performance of services by, the Optionee
that are necessary before the Option Rights
4
<PAGE>
or installments thereof shall become exercisable, and any grant may provide for
the earlier exercise of the Option Rights in the event of a change in control of
the Company or other similar transaction or event.
(j) Option Rights granted pursuant to this Section 4 may be
Nonqualified Options or Tax-qualified Options or combinations thereof.
(k) Any grant of an Option Right may provide for the payment
to the Optionee of dividend equivalents thereon in cash or Common Shares on a
current, deferred or contingent basis, or the Committee may provide that any
dividend equivalents shall be credited against the Option Price.
(l) No Option Right granted pursuant to this Section 4 may be
exercised more than 10 years from the Date of Grant.
(m) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Company by any officer thereof and delivered to and
accepted by the Optionee and shall contain such terms and provisions as the
Committee may determine consistent with this Plan.
5. Appreciation Rights. The Committee may also authorize grants
to Participants of Appreciation Rights. An Appreciation Right shall be a right
of the Participant to receive from the Company an amount, which shall be
determined by the Committee and shall be expressed as a percentage (not
exceeding 100%) of the Spread at the time of the exercise of an Appreciation
Right. Any grant of Appreciation Rights under this Plan shall be upon such terms
and conditions as the Committee may determine in accordance with the following
provisions:
(a) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right may be paid by the Company in cash, Common
Shares or any combination thereof and may either (i) grant to the Participant or
reserve to the Committee the right to elect among those alternatives or (ii)
preclude the right of the Participant to receive and the Company to issue Common
Shares or other equity securities in lieu of cash.
(b) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right shall not exceed a maximum specified by the
Committee on the Date of Grant.
(c) Any grant may specify (i) a waiting period or periods
before Appreciation Rights shall become exercisable and (ii) permissible dates
or periods on or during which Appreciation Rights shall be exercisable.
(d) Notwithstanding any provision of this Plan to the
contrary, when granting Appreciation Rights with respect to the employees of, or
consultants to, an Advisor, the Committee may (i) make individual grants to each
such employee and consultant, and/or (ii) make aggregate grants to such Advisor
and delegate to the compensation committee, board of directors, general partner
or other appropriate management representative of the Advisor the authority to
determine the specific allocation and recipients of such grants.
5
<PAGE>
(e) Any grant may specify that an Appreciation Right may be
exercised only in the event of a change in control of the Company or other
similar transaction or event.
(f) Any grant may provide for the payment to the Participant
of dividend equivalents thereon in cash or Common Shares on a current, deferred
or contingent basis.
(g) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Company by any officer thereof and delivered to and
accepted by the Optionee and shall describe the subject Appreciation Rights,
identify any related Option Rights, state that the Appreciation Rights are
subject to all of the terms and conditions of this Plan and contain such other
terms and provisions as the Committee may determine consistent with this Plan.
(h) Regarding Tandem Appreciation Rights only: Each grant
shall provide that a Tandem Appreciation Right may be exercised only (i) at a
time when the related Option Right (or any similar right granted under any other
plan of the Company) is also exercisable and the Spread is positive and (ii) by
surrender of the related Option Right (or such other right) for cancellation.
(i) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each
Free-standing Appreciation Right a Base Price per Common Share, which
shall be equal to or greater than the Market Value per Share on the
Date of Grant;
(ii) Successive grants may be made to the same
Participant regardless of whether any Free-standing Appreciation Rights
previously granted to the Participant remain unexercised;
(iii) Each grant shall specify the period or periods
of continuous employment of, or continuous performance of services by,
the Participant that are necessary before the Free-standing
Appreciation Rights or installments thereof shall become exercisable;
and any grant may provide for the earlier exercise of the Free-standing
Appreciation Rights in the event of a change in control of the Company
or other similar transaction or event; and
(iv) No Free-standing Appreciation Right granted
under this Plan may be exercised more than 10 years from the Date of
Grant.
6. Restricted Shares. The Committee may also authorize grants or sales
to Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate transfer
of the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to dividend, voting and
other ownership rights, subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
6
<PAGE>
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by the
Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Restricted
Shares covered thereby shall be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Committee on the Date of Grant, and any grant or sale may provide for the
earlier termination of such period in the event of a change in control of the
Company or other similar transaction or event.
(d) Each grant or sale shall provide that, during the period
for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Committee on the Date of Grant.
Such restrictions may include without limitation rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any transferee.
(e) Notwithstanding any provision of this Plan to the
contrary, when granting or offering sales of Restricted Shares with respect to
the employees of, or consultants to, an Advisor, the Committee may (i) make
individual grants or offers to each such employee and consultant, and/or (ii)
make aggregate grants or offers to such Advisor and delegate to the compensation
committee, board of directors, general partner or other appropriate management
representative of the Advisor the authority to determine the specific allocation
and recipients of such grants or offers.
(f) Any grant or sale may require that any or all dividends or
other distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Common Shares, which may be subject to the same
restrictions as the underlying award or such other restrictions as the Committee
may determine.
(g) Each grant or sale shall be evidenced by an agreement,
which shall be executed on behalf of the Company by an officer thereof and
delivered to and accepted by the Participant and shall contain such terms and
provisions as the Committee may determine consistent with this Plan. Unless
otherwise directed by the Committee, all certificates representing Restricted
Shares, together with a stock power that shall be endorsed in blank by the
Participant with respect to the Restricted Shares, shall be held in custody by
the Company until all restrictions thereon lapse.
7. Transferability.
(a) No Option Right, Appreciation Right or other derivative
security (as that term is used in Rule 16b-3) granted under this Plan may be
transferred by a Participant except by will or the laws of descent and
distribution. Option Rights and Appreciation Rights granted under this Plan may
not be exercised during a Participant's lifetime except by the Participant or,
in the event of the Participant's legal incapacity, by his guardian or legal
representative acting in a fiduciary capacity on behalf of the Participant under
state law and court supervision.
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<PAGE>
Notwithstanding the foregoing, the Committee, in its sole discretion, may
provide for the transferability of particular awards under this Plan so long as
such provisions will not disqualify the exemption for other awards under Rule
16b-3, if such Rule is then applicable to awards under the Plan.
(b) Any grant made under this Plan may provide that all or any
part of the Common Shares that are to be issued or transferred by the Company
upon the exercise of Option Rights or Appreciation Rights, or are no longer
subject to the substantial risk of forfeiture and restrictions on transfer
referred to in Section 6 of this Plan, shall be subject to further restrictions
upon transfer.
8. Adjustments.
(a) The Committee may make or provide for such adjustments in
the number of Common Shares covered by outstanding Option Rights, Appreciation
Rights and Restricted Shares granted hereunder, the Option Prices per Common
Share or Base Prices per Common Share applicable to any such Option Rights and
Appreciation Rights, and the kind of shares (including shares of another issuer)
covered thereby, as the Committee may in good faith determine to be equitably
required in order to prevent dilution or expansion of the rights of Participants
that otherwise would result from (i) any stock dividend, stock split,
combination of shares, recapitalization or similar change in the capital
structure of the Company or (ii) any merger, consolidation, spin-off, spin-out,
split-off, split-up, reorganization, partial or complete liquidation or other
distribution of assets, issuance of warrants or other rights to purchase
securities or any other corporate transaction or event having an effect similar
to any of the foregoing. In the event of any such transaction or event, the
Committee may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it may in good faith determine to be
equitable under the circumstances and may require in connection therewith the
surrender of all awards so replaced. Moreover, the Committee may on or after the
Date of Grant provide in the agreement evidencing any award under this Plan that
the holder of the award may elect to receive an equivalent award in respect of
securities of the surviving entity of any merger, consolidation or other
transaction or event having a similar effect, or the Committee may provide that
the holder will automatically be entitled to receive such an equivalent award.
The Committee may also make or provide for such adjustments in the maximum
numbers of Common Shares specified in Section 3 of this Plan as the Committee
may in good faith determine to be appropriate in order to reflect any
transaction or event described in this Section 8.
(b) If another corporation is merged into the Company or the
Company otherwise acquires another corporation, the Committee may elect to
assume under this Plan any or all outstanding stock options or other awards
granted by such corporation under any stock option or other plan adopted by it
prior to such acquisition. Such assumptions shall be on such terms and
conditions as the Committee may determine; provided, however, that the awards as
so assumed do not contain any terms, conditions or rights that are inconsistent
with the terms of this Plan. Unless otherwise determined by the Committee, such
awards shall not be taken into account for purposes of the limitations contained
in Section 3 of this Plan.Unless otherwise determined by the Committee, such
awards shall not be taken into account for purposes of the limitations contained
in Section 3 of this Plan.
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9. Fractional Shares. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Committee may provide for
the elimination of fractions or for the settlement thereof in cash.
10. Withholding Taxes. To the extent that the Company, any Subsidiary
or any Advisor is required to withhold federal, state, local or foreign taxes in
connection with any payment made or benefit realized by a Participant or other
person under this Plan, and the amounts available to the Company, such
Subsidiary or such Advisor (as applicable) for the withholding are insufficient,
it shall be a condition to the receipt of any such payment or the realization of
any such benefit that the Participant or such other person make arrangements
satisfactory to the Company, such Subsidiary or such Advisor (as applicable) for
payment of the balance of any taxes required to be withheld. At the discretion
of the Committee, any such arrangements may without limitation include voluntary
or mandatory relinquishment of a portion of any such payment or benefit or the
surrender of outstanding Common Shares. The Company, such Subsidiary or such
Advisor (as applicable) and any Participant or such other person may also make
similar arrangements with respect to the payment of any taxes with respect to
which withholding is not required.
11. Certain Terminations of Employment or Service, Hardship, and
Approved Leaves of Absence. Notwithstanding any other provision of this Plan to
the contrary, in the event of the termination of employment or service by reason
of death, disability or retirement, termination of employment or service to
enter public or military service with the consent of the Company, any Subsidiary
or any Advisor (as applicable), or leave of absence approved by the Company,
such Subsidiary or such Advisor (as applicable), or in the event of the hardship
or other special circumstances, of a Participant who holds an Option Right or
Appreciation Right that is not immediately and fully exercisable, or any
Restricted Shares as to which the substantial risk of forfeiture or the
prohibition or restriction on transfer has not lapsed, the Committee may take
any action that it deems to be equitable under the circumstances or in the best
interests of the Company, such Subsidiary or such Advisor (as applicable),
including without limitation waiving or modifying any limitation or requirement
with respect to any award under this Plan.
12. Administration of the Plan.
(a) This Plan shall be administered by the Compensation
Committee of the Board, which shall be composed of not less than two members of
the Board, or, in the absence of a Compensation Committee, by the full Board. At
any time that awards under the Plan are subject to Rule 16b-3, each member of
the Compensation Committee shall be a "non-employee director" within the meaning
of such Rule. In addition, at any time that the Company is subject to Section
162(m) of the Code, each member of the Compensation Committee shall be an
"outside director" within the meaning of such Section. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee.
(b) The interpretation and construction by the Committee of any
provision of this Plan or any agreement, notification or document evidencing the
grant of Option Rights, Appreciation Rights or Restricted Shares, and any
determination by the Committee pursuant to any provision of this Plan or any
such agreement, notification or document, shall be final and conclusive. No
member of the Committee shall be liable for any such action taken or
determination made in good faith.
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<PAGE>
13. Amendments and Other Matters.
(a) This Plan may be amended from time to time by the
Committee; provided, however, that except as expressly authorized by this Plan,
no such amendment shall cause this Plan to cease to satisfy any applicable
condition of Rule 16b-3 or cause any award under the Plan to cease to qualify
for any applicable exception to Section 162(m) of the Code, without the further
approval of the stockholders of the Company.
(b) With the concurrence of the affected Participant, the
Committee may cancel any agreement evidencing Option Rights or any other award
granted under this Plan. In the event of any such cancellation, the Committee
may authorize the granting of new Option Rights or other awards hereunder, which
may or may not cover the same number of Common Shares as had been covered by the
cancelled Option Rights or other award, at such Option Price, in such manner and
subject to such other terms, conditions and discretion as would have been
permitted under this Plan had the cancelled Option Rights or other award not
been granted.
(c) The Committee may condition the grant of any award or
combination of awards authorized under this Plan on the surrender or deferral by
the Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company, any Subsidiary or any Advisor to
the Participant.
(d) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Company, any
Subsidiary or any Advisor and shall not interfere in any way with any right that
the Company, such Subsidiary or such Advisor (as applicable) would otherwise
have to terminate any Participant's employment or other service at any time.
(e) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as a Tax-qualified Option
from so qualifying, any such provision shall be null and void with respect to
any such Option Right; provided, however, that any such provision shall remain
in effect with respect to other Option Rights, and there shall be no further
effect on any provision of this Plan.
(f) Any award that may be made pursuant to an amendment to
this Plan that shall have been adopted without the approval of the stockholders
of the Company shall be null and void if it is subsequently determined that such
approval was required under the terms of the Plan or applicable law.
(g) Unless otherwise determined by the Committee, this Plan is
intended to comply with Rule 16b-3 at all times that awards hereunder are
subject to such Rule.
10
<PAGE>
EXHIBIT 10.6
OMNIBUS CONTRIBUTION AGREEMENT
BY AND AMONG
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of January 30, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES................. 2
1.1 Acquisition of Interests............................. 2
1.2 Term of Agreement.................................... 2
1.3 Consideration........................................ 2
1.4 Closing; Condition to Obligations.................... 2
1.5 Documents to be Delivered at Closing................. 4
1.6 Cessation of IPO..................................... 5
1.7 Closing Costs........................................ 5
1.8 Default.............................................. 5
1.9 Further Assurances................................... 6
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS............................ 6
2.1 Title to Interests................................... 6
2.2 Authority............................................ 7
2.3 Litigation........................................... 8
2.4 No Other Agreements to Sell.......................... 8
2.5 No Brokers........................................... 9
2.6 Investment Representations and Warranties............ 9
2.7 FIRPTA Representation................................11
2.8 Additional Representations of Certain Contributor....11
2.9 Covenant to Remedy Breaches..........................11
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP................................12
3.1 Authority............................................12
3.2 No Brokers...........................................12
ARTICLE IV. CLOSING ADJUSTMENTS......................................12
4.1 Prorations...........................................12
4.2 Accounts Receivable..................................16
4.3 Security Deposits....................................16
4.4 Additional Indemnities...............................17
4.5 Timing of Calculations; Cooperation..................17
4.6 Allocation of Adjustments............................17
ARTICLE V. POWER OF ATTORNEY.........................................17
5.1 Grant of Power of Attorney...........................17
5.2 Limitation on Liability..............................18
5.3 Ratification; Third Party Reliance...................19
i
<PAGE>
ARTICLE VI. CONTRIBUTORS......................................................19
6.1 Amendment.........................................................19
6.2 Entire Agreement; Counterparts; Applicable Law....................19
6.3 Assignability.....................................................20
6.4 Titles............................................................20
6.5 Third Party Beneficiary...........................................20
6.6 Severability......................................................20
6.7 Equitable Remedies................................................20
6.8 Attorneys' Fees...................................................20
6.9 Notices...........................................................21
6.10 Waiver of Rights; Consents with Respect to Partnership Interests..22
6.11 Confidentiality...................................................24
6.12 Computation of Time...............................................24
6.13 Survival..........................................................24
6.14 Time of the Essence...............................................24
EXHIBIT A: Contributors
EXHIBIT B: Asset Entities
EXHIBIT C: Excluded Interests
EXHIBIT D: Permitted Encumbrances
EXHIBIT E: Operating Partnership Agreement
EXHIBIT F: Registration Rights Agreement
EXHIBIT G: Escrow Agreement
ii
<PAGE>
OMNIBUS CONTRIBUTION AGREEMENT
------------------------------
This Omnibus Contribution Agreement (the "Contribution Agreement") is
----------------------
executed as of the 30th day of January, 1998 by LaSalle Hotel Operating
Partnership, L.P. (the "Operating Partnership"), a Delaware limited partnership,
and the Contributors whose names are set forth in Exhibit A hereto (each, a
---------
"Contributor" and, collectively, the "Contributors").
- ------------ ------------
WHEREAS, in connection with the consolidation of its hotel acquisition and
ownership business, La Salle Partners has formed a Maryland real estate
investment trust (the "REIT") that will be the sole general partner and a
----
limited partner of the Operating Partnership and to effect an initial public
offering (the "IPO") of the REIT's common shares of beneficial interest ("Common
--- ------
Shares");
- ------
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in the following ten hotel properties:
Radisson Hotel South and Plaza Tower, Bloomington, Minnesota; Le Meridien New
Orleans Hotel, New Orleans, Louisiana; Le Meridien Dallas Hotel, Dallas, Texas;
The Omaha Marriott Hotel, Omaha, Nebraska; Marriott Seaview Resort, Galloway
Township, New Jersey; The Camberley Plaza Sabal Park, Tampa, Florida; Holiday
Inn Plaza Park, Visalia, California; Holiday Inn Beachside, Key West, Florida;
Le Montrose Suite Hotel de Gran Luxe, West Hollywood, California and the
LaGuardia Airport Marriott, New York, New York;
WHEREAS, it is further understood that the Operating Partnership may
acquire, either before or after the IPO, interests in additional hotel
properties located within or outside the United States;
WHEREAS, each Contributor owns interests in the partnerships, other
entities or properties described in the supplemental exhibit dated the date
hereof and delivered by or on behalf of such contributor to the Operating
Partnership (such exhibit being hereinafter referred to as such Contributor's
Supplemental Acquisition Exhibit);
- --------------------------------
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the interests owned by such
Contributor described in its Supplemental Acquisition Exhibit and (except for
the Excluded Interests set forth in Exhibit C) any other direct or indirect
---------
interests such Contributor may have, whether now owned or hereinafter acquired,
in the partnerships or other entities (the "Asset Entities") listed on Exhibit B
-------------- ---------
(each such asset or property and all personal property related thereto or to the
operation thereof is hereinafter referred to as an "Asset" and (except for the
-----
Excluded Interests) each such direct or indirect interest of a Contributor in
such Asset Entity or (in the case of Contributors which are themselves Asset
Entities) in such Asset, including without
<PAGE>
limitation, such Contributor's interests set forth in its Supplemental
Acquisition Exhibit, is referred to individually as an "Interest" and
--------
collectively, as such Contributor's "Interests");
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
-----------------------------------------
1.1 Acquisition of Interests. At the Final Closing (defined below), each
------------------------
Contributor shall, subject to the terms and conditions of this Contribution
Agreement, contribute, transfer, assign, and convey to the Operating Partnership
and the Operating Partnership shall (i) acquire and accept from such
Contributor, all right, title and interest of such Contributor in such
Contributor's Interests, free and clear of all Encumbrances (as defined in
Section 2.1 hereof) except Permitted Encumbrances (as defined in Section 2.1
hereof), and (ii) deliver to such Contributor such Contributor's Consideration
(defined below), both in accordance with this Contribution Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does not occur
-----------------
by December 31, 1998 (the "Termination Date"), this Contribution Agreement shall
be deemed terminated and shall be of no further force and effect and neither the
Operating Partnership nor the Contributors shall have any further obligations
hereunder except as specifically set forth herein.
1.3 Consideration. The full consideration for each Contributor's
-------------
Interests (such consideration with respect to such Contributor is hereinafter
referred to as such Contributor's "Consideration") shall be an amount in cash
-------------
and/or a number of Units (as hereinafter defined) set forth in the Contributor's
Supplemental Acquisition Exhibit, subject to the terms and provisions of Article
IV hereof providing for adjustments to each Contributor's Consideration based on
closing adjustments; it being understood that it is the intention of the parties
to this Contribution Agreement that any Minimum Working Capital (as defined in
Section 4.1(c) hereof) and any balances remaining in any furniture, fixtures and
equipment reserve accounts are to be transferred to the Operating Partnership as
a part of the applicable Asset. As used herein, the term "Units" means units of
-----
limited partnership interest in the Operating Partnership.
1.4 Closing; Condition to Obligations. In connection with the acquisition
---------------------------------
of the Contributors' Interests, the Operating Partnership will notify the
Contributors of a closing date, which date will be no earlier than five (5)
business days after such notification and no later than December 15, 1998
(fifteen (15) business days prior to the Termination Date), for the initial
closing (the "Initial Closing") of the acquisition contemplated by Contribution
---------------
Agreement. At or before such Initial Closing, which shall be held at the
offices of Brown & Wood llp, One World Trade Center, New York, New York 10048 or
such other place as is
2
<PAGE>
determined by the Operating Partnership in its sole discretion at a time
specified by the Operating Partnership in its sole discretion, the Operating
Partnership and the Contributors will execute all closing documents (the
"Closing Documents") required by the Operating Partnership in accordance with
- ------------------
Section 1.5 hereof and deposit the same in escrow with Brown & Wood llp, New
York, New York, pursuant to an escrow agreement in substantially the form of
Exhibit F hereto, as escrow agent of the Operating Partnership (the "Closing
- --------- -------
Agent").
- -----
The transactions contemplated by this Contribution Agreement and by the
Closing Documents executed and deposited in connection with such exercise will
be consummated at the Final Closing (as defined below) only if (i) the closing
of the IPO (the "IPO Closing") is consummated by the earlier of (a) fifteen (15)
-----------
business days after the date of the Initial Closing and (b) the Termination Date
and (ii) the Total Company Enterprise Value (as defined in the Supplemental
Acquisition Exhibits) is equal to or greater than $405,000,000. If the IPO
Closing occurs by such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing, cause to be delivered to the Closing Agent with
respect to each Contributor (i) the cash portion of such
Contributor's Consideration, if any (such cash portion, the
"Cash Portion"), and (ii) if applicable, a certificate of
------------
the General Partner of the Operating Partnership certifying
that such Contributor has been or will be, effective upon
the Final Closing (as hereinafter defined), admitted as a
limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will
indicate that such Contributor is the holder of the number
of Units which are called for pursuant to the Consideration
as adjusted pursuant to Article IV hereof;
(b) upon receipt of the Consideration set forth in clause (a)
above, the Closing Agent will release the Closing Documents
to the Operating Partnership and deliver to the Contributor
the Cash Portion, if any, and, if requested by the
Contributor, a copy of such General Partner's certificate;
and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "Final Closing").
--------------
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a
3
<PAGE>
breach of or other exception with respect to Article 2 hereof or has otherwise
materially breached this Contribution Agreement (any such Contributor, a "Non-
---
Complying Contributor"), in which case the Operating Partnership shall, in lieu
- ---------------------
of the delivery with respect to such Contributor pursuant to clause (a) above,
notify the Closing Agent of such election and direct the Closing Agent to return
such Contributor's Closing Documents and Ancillary Agreements (as defined below)
to such Contributor. The election of the Operating Partnership to not acquire
all or any portion of the Interests of a particular Non-Complying Contributor
shall not affect the obligations of any other Contributor hereunder, including
any other Non-Complying Contributor.
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be destroyed or damaged by fire or other casualty, then
this Contribution Agreement may, at the option of the Operating Partnership, be
terminated with respect to the Asset Entity, the Assets of which have been
destroyed or damaged. If, after the occurrence of any such casualty affecting
an Asset Entity's Assets, this Contribution Agreement is not so terminated
relative to such Asset Entity, the Operating Partnership may elect to (a)
purchase the given Contributors' Interests in such Asset Entity or Assets, as
the case may be, and (b) direct such Contributors to pay or cause to be paid to
the Operating Partnership any sums collected under any policies of insurance
because of damage due to such casualty and otherwise assign to the Operating
Partnership all rights to collect such sums as may then be uncollected;
provided, however, that the Contributors shall not adjust or settle any
insurance claim without the Operating Partnership's prior written consent, such
consent not to be unreasonably withheld or delayed. Under such circumstances,
the Consideration payable upon such purchase shall be reduced by the amount of
any deductibles under the applicable insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8 hereof, neither party shall have
any obligations under the Closing Documents or under any agreements or
instruments executed in connection with the transactions contemplated hereunder
or thereunder (such other agreements or instruments, collectively, "Ancillary
---------
Agreements"), this Contribution Agreement, the Closing Documents and the
- ----------
Ancillary Agreements shall be deemed null and void ab initio and the Closing
---------
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent.
1.5 Documents to be Delivered at Closing. At the Initial Closing, each
------------------------------------
Contributor shall, directly or through the attorney-in-fact appointed pursuant
to Article V hereof, execute, acknowledge, where deemed desirable or necessary
by the Operating Partnership, and deliver to the Closing Agent, in addition to
any other documents mentioned elsewhere herein, the following:
4
<PAGE>
(a) An Assignment of Interests (the "Assignment"), which assignment
----------
shall be in a form satisfactory to the Operating Partnership, shall contain a
warranty of title that such Contributor owns such Contributor's Interests free
and clear of all Encumbrances (as defined in Section 2.1 hereof), except, where
applicable, for the Permitted Encumbrances (as defined in Section 2.1 hereof)
and shall either (i) reaffirm the accuracy of all representations and warranties
and the satisfaction of all covenants made by such Contributor in Article II
hereof or (ii) if such reaffirmation cannot be made, identify those
representations, warranties and covenants of Article II hereof (other than
Section 2.5 hereof) with respect to which circumstances have changed, represent
that such Contributor has used all reasonable efforts within its control to
prevent and remedy such breach, and reaffirm the accuracy of all other
representations and warranties and the satisfaction of all other covenants made
by such Contributor in Article II hereof.
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests and effectuate the transactions contemplated
hereby, including, without limitations, deeds, assignments of ground leases and
space leases (as applicable), New York City and New York State transfer tax and
gains tax returns and any other filings with any applicable governmental
jurisdiction in which the Operating Partnership is required to file its
partnership documentation or the recording of the Assignment is required.
1.6 Cessation of IPO. If at any time the Operating Partnership or the
----------------
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO (the date of such determination being referred to as the
"Cessation Date"), the Operating Partnership will so advise each Contributor in
- ---------------
writing and thereupon all parties hereto will be relieved of all obligations
under this Contribution Agreement, all Ancillary Agreements, and all Closing
Documents (except for obligations arising under Sections 1.7, 2.5 and 3.2
hereof).
1.7 Closing Costs. The Operating Partnership agrees to pay all of the
-------------
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to this Contribution Agreement (the
"Contribution Rights"), including, without limitation, any applicable transfer,
gains and sales taxes and any transfer fee due in connection with the assumption
of existing mortgage debt by the Operating Partnership; provided, however, that
certain costs associated with the foregoing shall be deducted from the
Consideration payable to each Contributor in accordance with the adjustments set
forth in Article IV and as set forth in such Contributor's Supplement
Acquisition Exhibit.
1.8 Default. (a) If, after notifying the Contributors of a date for the
-------
Initial Closing, the Operating Partnership fails to close (including a failure
due to the IPO Closing not occurring), then the Operating Partnership will pay
to each Contributor the sum of $100.00 as liquidated and agreed-upon damages.
It would be difficult, if not impossible, to ascertain the actual measure of
each Contributor's damages in the event of the Operating
5
<PAGE>
Partnership's default and the parties agree that $100.00 is a fair reflection of
each Contributor's damages in the event of the Operating Partnership's default.
(b) If any Contributor defaults with respect to its obligations under
this Contribution Agreement, the Operating Partnership shall be entitled to
exercise against each such Contributor any and all remedies provided at law or
in equity, including but not limited to, the right to specific performance. No
default by any Contributor hereunder shall in any way limit or affect the
obligations of any other Contributor hereunder.
1.9 Further Assurances. Each Contributor will, from time to time, execute
------------------
and deliver to the Operating Partnership all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Operating Partnership may reasonably request in order to effect the
transactions contemplated by this Contribution Agreement, including instruments
or documents deemed necessary or desirable by the Operating Partnership to
effect and evidence the conveyance of such Contributor's Interests in accordance
with the terms of this Contribution Agreement. The provisions of this Section
1.9 shall survive the Final Closing.
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
-----------------------------
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set forth in this Article II, which
representations and warranties (unless otherwise noted) are true as of the date
hereof. As a condition to the Operating Partnership's obligation to complete
the acquisition of any Contributor's Interests after the exercise of the
Contribution Right, such representations and warranties must continue to be true
as of the date of the Initial Closing and as of the date of the Final Closing.
2.1 Title to Interests. Each Contributor owns its Interests beneficially
------------------
and of record, free and clear of any claim, lien, pledge, voting agreement,
option, charge, security interest, mortgage, deed of trust, encumbrance, rights
of assignment, purchase rights or other rights of any nature whatsoever
(collectively, "Encumbrances"), except as disclosed as exceptions in a title
report for real property owned by an Asset Entity, dated on or after the date
the Property was acquired by the applicable Asset Entity, and subject to such
further title exceptions as are satisfactory to the Operating Partnership in its
sole discretion, and as set forth on Exhibit D attached hereto (any such
---------
encumbrance, a "Permitted Encumbrance"), and has full power and authority to
convey free and clear of any Encumbrances (except, where applicable, the
Permitted Encumbrances), its Interests and, upon delivery of any Assignment by
such Contributor conveying its Interests and delivery of Consideration for such
Interests as herein provided, the Operating Partnership will acquire good and
valid title thereto, free and clear of any Encumbrance except Encumbrances
created in favor of the
6
<PAGE>
Operating Partnership by the transactions contemplated hereby and, where
applicable, the Permitted Encumbrances. No Contributor will consent to join in
or in any way effect the transfer of any Asset prior to the Final Closing. At
the Final Closing, if so requested, Contributors will execute all documents
necessary to enable a title insurance company (acceptable to the Operating
Partnership, in its sole discretion) to issue to the Operating Partnership an
ALTA Form B (1987 or later) Owner's Policy and such endorsements as the
Operating Partnership may reasonably request, insuring fee simple and/or
leasehold title to all real property and improvements comprising all or any part
of the Assets to the Operating Partnership; provided that each Contributor's
cost of complying with this requirement shall be limited to ten percent of the
Consideration to be received by such Contributor, which amount shall be deducted
from such Consideration at the Final Closing. Each of such Contributor's
Interests have been validly issued and Contributor has funded (or will fund
before the same is past due) all capital contributions and advances to the
partnership or other entity in which such Interest represents an interest that
are required to be funded or advanced prior to the date hereof and the date of
the Initial Closing and the Final Closing. There are no agreements, instruments
or understandings with respect to any of such Contributor's Interests except as
set forth (x) in the partnership agreement of the partnership in which an
Interest represents a limited partner or general partner interest or as
disclosed in writing to the Operating Partnership and (y) in any third party
agreement to which an Asset Entity is currently a party, e.g., franchise
agreements, ground leases, etc. Such Contributor has no interest, either direct
or indirect, in any of the Assets except for (a) the Interests owned by it which
are the subject of this Contribution Agreement, (b) the Excluded Interests,
where applicable, and (c) direct or indirect interests in partnerships or other
entities which are themselves Contributors hereunder. Such Contributor
covenants that no Encumbrance on his Interests (except, where applicable, the
Permitted Encumbrances) will be in existence as of the date of the Final
Closing. In making the representations in this Section 2.1 regarding the
absence of Encumbrances, each Contributor may assume that the consents and
waivers of rights set forth in Section 6.10 hereof have been given by all
partners of partnerships in which such Contributor's Interest represent direct
or indirect interests. Notwithstanding anything to the contrary contained
herein, to the extent that the Contributor's Interests transferred hereunder
constitute interests in partnerships or other entities ("Continuing
Partnerships") which will continue in existence after the consummation of the
transactions contemplated hereby, such Interests are and will remain subject to
the terms and provisions of the partnership or other organizational agreements
(as amended) of the Continuing Partnerships, including without limitation,
restrictions, options, priorities and partnership loans and partnership
obligations provided for therein.
2.2 Authority. Such Contributor has full right, authority, power and
---------
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to transfer, convey,
assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement,
7
<PAGE>
document and instrument executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, equity of
redemption, moratorium or similar laws now or hereafter in effect relating to
the enforcement of creditors' rights and general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). Except for any breaches, violations or defaults which will be waived
or cured prior to the Initial Closing and all loans, indentures, creditor
agreements or other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing and any required consents obtained from
third parties to existing agreements to which an Asset Entity is bound e.g.,
franchise agreements, ground leases, etc., the execution, delivery and
performance of this Contribution Agreement and each such agreement, document and
instrument by or on behalf of such Contributor: (a) does not and will not
violate such Contributor's partnership agreement, operating agreement,
declaration of trust, charter or bylaws, if applicable, or other organizational
documentation; (b) does not and will not violate any foreign, federal, state,
local or other laws applicable to or binding on such Contributor or require such
Contributor to obtain any approval, consent or waiver of, or make any filing
with, any person or authority (governmental or otherwise) that has not been
obtained or made or which does not remain in effect; and (c) does not and will
not result in a breach of, constitute a default under, accelerate any obligation
under or give rise to a right of termination of, any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which such Contributor is a party or by which the
property of such Contributor is bound or affected, or result in the creation of
any Encumbrance on any of the property or assets of any partnership in which an
Interest of such Contributor represents an interest. In making the
representations set forth in this Section 2.2, each Contributor may assume that
the consents and waivers of rights set forth in Section 6.10 hereof have been
given by all partners of partnerships or owners of voting interests, other than
the Contributors, in entities in which such Contributor's Interests represent
direct or indirect interests.
2.3 Litigation. To the best of such Contributor's knowledge, there is no
----------
litigation or proceeding, either judicial or administrative, pending or
threatened in writing, materially and adversely affecting all or any portion of
such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such Contributor's ability to
enter into and perform all of its obligations under this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor represents that it has
---------------------------
not made any agreement with, and will not enter into any agreement with, and has
no obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to
8
<PAGE>
sell, transfer or in any way encumber (except for Permitted Encumbrances) any of
such Contributor's Interests or to not sell such Contributor's Interests, or (b)
to enter into any agreement with respect to a sale, transfer or encumbrance or
put or call right with respect to such Contributor's Interests. In making the
representations set forth in this Section 2.4, the each Contributor may assume
that the consents and waivers of rights set forth in Section 6.10 hereof have
been given by all partners of partnerships or owners of voting interests, other
than the Contributors, in entities which such Contributor's Interests represent
direct or indirect interests.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
----------
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless the Operating Partnership for all costs and expenses incurred
by the Operating Partnership as a result of a breach of this representation.
The provisions of this Section 2.5 shall survive termination of this
Contribution Agreement.
2.6 Investment Representations and Warranties. Each Contributor who is
-----------------------------------------
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of the
agreement of limited partnership of the Operating Partnership (in substantially
the form attached hereto as Exhibit E) (the "Partnership Agreement"), including
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended from time in accordance with its terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such investment. If such
Contributor retained a person to represent or advise it with respect to the
investment in Units that may be made hereby then, at Contributor's request, such
Contributor shall, prior to or at the Initial Closing, (i) acknowledge in
writing such representation and (ii) cause such representative or advisor to
deliver a certificate to the Operating Partnership containing such
representations as are reasonably requested by the Operating Partnership.
9
<PAGE>
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership and/or Contributor's
position (in the case of certain individual Contributors) as a director or
executive officer of the REIT.
(d) The Units to be issued to such Contributor will be acquired by
such Contributor for its own account (or if such Contributor is a trustee, for a
trust account) for investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Contributor's right
(subject to the terms of the Units) at all times to distribute the Units to
affiliates of such Contributor or to sell or otherwise dispose of all or any
part of its Units under an exemption from such registration available under the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
--------------
securities laws, and subject, nevertheless, to the disposition of its assets
being at all times within its control. Such Contributor was not formed for the
specific purpose of acquiring an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to
such Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws, except as set forth in the Registration Rights
Agreement. Such Contributor hereby acknowledges that because of the
restrictions on transfer or assignment of such Units to be issued hereunder
which will be set forth in the Partnership Agreement and/or in a
10
<PAGE>
Registration Rights Agreement (as defined in Section 5.1 hereof), such
Contributor may have to bear the economic risk of the investment commitment
evidenced by this Contribution Agreement and any Units acquired hereby for an
indefinite period of time, although (i) under the terms of the Partnership
Agreement, as it will be in effect at the time of the IPO, Units will be
redeemable at the request of the holder thereof at any time after the first
anniversary of their issuance for cash or (at the option of the REIT) for Common
Stock of the REIT and (ii) the holder of any such Common Stock issued upon a
presentation of Units for redemption will be afforded certain rights to have
such Common Stock registered for resale under the Securities Act or applicable
state securities laws under the Registration Rights Agreement as described more
fully below.
(f) Each Contributor is an "accredited investor" as defined in Rule
501 of Regulation D under the Securities Act.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within
---------------------
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 Additional Representations of Certain Contributors. Each Contributor
--------------------------------------------------
(each, an "Indemnitor") shall enter into a supplemental agreement (each, a
----------
"Supplemental Agreement") on terms mutually acceptable to the Indemnitor and the
- -----------------------
Operating Partnership whereby each Indemnitor makes additional representations,
warranties and covenants with respect to matters relating to this Contribution
Agreement which shall survive the consummation of the transactions contemplated
by this Contribution Agreement for a period equal to one (1) year from the date
of the Final Closing and shall expire with, and be terminated and extinguished
forever, at such time except with respect to claims asserted by written notice
of or on behalf of the Operating Partnership at any time during such period
against the Indemnitor making such representations, warranties or covenants.
Each Supplemental Agreement shall provide that (a) the maximum aggregate
liability of the Indemnitor for any misrepresentation or misrepresentations or
any breach or breaches of any one or more of the representations, warranties or
covenants set forth therein shall equal the value of the Units received by such
Indemnitor on the closing of the IPO, (b) the Operating Partnership shall make
no claim thereunder against the Indemnitor and such Indemnitor shall have no
liability resulting from claims or other assertions of liability arising from
the Supplemental Agreement unless and until such claim or claims exceed $100,000
in the aggregate, and (c) recourse thereunder shall be limited to such
Indemnitor's Units.
2.9 Covenant to Remedy Breaches. Each Contributor covenants to use all
---------------------------
reasonable efforts within its control (a) to not take any action that would
cause the breach of any representation or warranty of such Contributor hereunder
and (b) to satisfy all covenants of such Contributor hereunder.
11
<PAGE>
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
-------------------------------------------------------
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
---------
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by the Operating Partnership: (a) does not
and will not violate the Partnership Agreement; (b) does not and will not
violate any foreign, federal, state and local or other laws applicable to
Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Operating Partnership is a party
or by which the property of the Operating Partnership is bound or affected.
3.2 No Brokers. The Operating Partnership represents that it has not
----------
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
any Contributor to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
ARTICLE IV. CLOSING ADJUSTMENTS
-------------------
4.1 Prorations. The Consideration for the Assets shall be subject to
----------
prorations and credits as follows to be determined as of 12:01 A.M. local time
for wherever the Asset is located on the date of the Final Closing (the
"Adjustment Time"), it being understood that
12
<PAGE>
the date of the Final Closing shall be the first day of income and expense to
the Operating Partnership. Except as specifically set forth below, all
allocations, prorations and adjustments shall be made as of such time:
(a) Hotel Revenues. Except as set forth below, each Asset Entity
--------------
shall be entitled to all hotel room, food service, bar, beverage and liquor
revenues and charges and all revenues and charges from hotel room
operations, restaurant operations, hotel banquet and conference facility
operations, and other revenue of any kind attributable to the same for the
period prior to the "Adjustment Time". The Operating Partnership shall be
entitled to all hotel room, food service, bar, beverage and liquor revenues
and charges and all revenues and charges from hotel room operations,
restaurant operations, hotel banquet and conference facility operations,
and all other revenue of any kind attributable to any of the same for the
period on and after the "Adjustment Time". Notwithstanding the foregoing,
the Operating Partnership shall be entitled to one-half (1/2) of the
revenue from hotel rooms at each Asset for the night preceding the date of
the Final Closing. The Operating Partnership shall not give any Asset
Entity a credit at the date of the Final Closing for any accounts
receivable in connection with the Asset as of the date of the Final
Closing; but the Operating Partnership shall use reasonable efforts to
collect such accounts receivable and shall remit them to the Asset Entity
upon collection, less all reasonable third party costs of collection;
provided, however, any collection of account receivables by the Operating
Partnership shall first be applied to those accruing prior to the date of
the Final Closing. Each Asset Entity shall provide the Operating
Partnership a credit against the Consideration for such Asset in an amount
equal to all guest reservation deposits held by the related hotel for hotel
guests arriving or staying after check out time for such Asset on the date
of the Final Closing.
(b) Rents payable under Tenant Leases. Prepaid rent,
---------------------------------
nondelinquent rents, and tax reimbursements under any space leases
affecting the Asset (collectively, "Rents") collected subsequent to the
-----
date of the Final Closing and properly allocable to periods prior to the
date of the Final Closing, net of the Operating Partnership's costs of
collection, if any, shall be paid, promptly after receipt, to each Asset
Entity, but subject to all of the provisions of this Section hereof; and
any portion thereof properly allocable to periods subsequent to the date of
the Final Closing, if any, shall be paid to the Operating Partnership. Any
amount collected from a tenant by the Operating Partnership shall first be
applied to such tenant's current monthly rental and then to past due
amounts in the reverse order in which they were due. Any advance rental
payments or deposits paid by tenants prior to the date of the Final Closing
and applicable to the period of time subsequent to the date of the Final
Closing and any security deposits or other amounts paid by tenants,
together with any interest on both thereof to the extent such interest is
due to tenants, shall be credited to the Operating Partnership on the date
of the Final Closing. Any invoices associated with tenant pass throughs
shall be attributable, prior to the
13
<PAGE>
Adjustment Time, to the relevant Asset Entity and after the Adjustment
Time, any to the Operating Partnership. No credit shall be given the Asset
Entity for accrued and unpaid Rent or any other non-current sums due from
tenants until said sums are paid.
(c) Minimum Working Capital; Cash and Cash Reserves. The Asset
-----------------------------------------------
shall, as of the Closing Time, have working capital equal to the amount set
forth on Exhibit B ("Minimum Working Capital"). To the extent all petty
cash funds at the Asset and all cash in any operating accounts for the
Asset exceed the amount required to fund Minimum Working Capital, the
Operating Partnership shall give Asset Entity a credit on the date of the
Final Closing. To the extent such cash is insufficient to fund Minimum
Working Capital, the deficiency shall be deducted from the consideration
payable to Contributor in accordance with such Contributor's Supplemental
Acquisition Exhibit. Any balances remaining in any furniture, fixtures and
equipment reserve accounts are to be transferred to the Operating
Partnership as a part of the Asset. The Operating Partnership and the
Asset Entity shall make mutually satisfactory arrangements for counting
such cash and determining the balances in the operating accounts as of the
Adjustment Time.
(d) Trade Payables. Trade payables shall mean (for all purposes)
--------------
under this Contribution Agreement, open accounts payable to trade vendors
or suppliers of the Asset's hotel, restaurant, bar or similar facilities.
Each Asset Entity agrees to give the Operating Partnership a credit on the
date of the Final Closing for all trade payables from the Asset which have
accrued on or prior to the Adjustment Time, and the Operating Partnership
shall be obligated to pay such payables to the extent it has received a
credit from the Asset Entity on the date of the Final Closing. The
Operating Partnership agrees to pay all trade payables from each Asset
which have accrued after the Adjustment Time and shall and hereby does
indemnify and hold each Asset Entity harmless from payment of the same.
The indemnities contained or provided for in this section survive the date
of the Final Closing.
(e) Banquet and Event Deposits. The Operating Partnership shall
--------------------------
receive and be entitled to a credit against the Consideration for all
prepaid deposits for banquets and other functions that are scheduled to
take place at any Asset on or after the date of the Final Closing.
(f) Service Contracts and Equipment Leases. Any amounts prepaid
--------------------------------------
or payable under any Service Contracts or Equipment Leases or any other
agreements which the Operating Partnership has elected to assume shall be
prorated at the date of the Final Closing as of the date of the Final
Closing with the relevant Asset Entity obligated for all sums accrued prior
to the Adjustment Time and the Operating Partnership obligated for all sums
accrued after the Adjustment Time.
(g) Sales Tax. The Operating Partnership shall receive a credit
---------
for any and all sales, occupancy, use or other taxes due in connection with
the operation
14
<PAGE>
of any Asset which have accrued prior to the date of the Final Closing and
the applicable Asset Entity shall indemnify the Operating Partnership for
all such taxes to the extent the Operating Partnership has not received
such credit. The Operating Partnership shall be responsible to pay all
such taxes to the extent it has received a credit and shall indemnify the
relevant Asset Entity for such taxes. The indemnifications set forth
herein shall survive the date of the Final Closing.
(h) Taxes. The Operating Partnership shall receive a credit for
-----
any accrued but unpaid real estate taxes (or, in the case of Radisson Hotel
South and Plaza Tower, any due and payable real estate taxes) imposed in
respect of any Asset for the portion of the current year which has elapsed
prior to the date of the Final Closing (and to the extent unpaid, for prior
years) and, any Asset Entity shall receive a credit for any prepaid real
estate taxes paid in respect of any Asset attributable to a portion of a
year after the date of the Final Closing. If the amount of any such taxes
have not been determined as of the date of the Final Closing, such credit
shall be based on the most recent ascertainable taxes and shall be
reprorated upon issuance of the final tax bill. An Asset Entity shall give
the Operating Partnership a credit for any special assessments which are
levied or charged against the Asset prior to date of the Final Closing,
whether or not then due and payable.
(i) Utilities. Utilities and fuel, including, without
---------
limitation, steam, water, electricity, gas and oil, shall be prorated as of
the date of the Final Closing. The Asset Entity shall cause the meters, if
any, for utilities to be read the day on which the Final Closing occurs and
to pay the bills rendered on the basis of such readings. If any such meter
reading for any utility is not available, then adjustment therefor shall be
made on the basis of the most recently issued bills therefor which are
based on meter readings no earlier than thirty (30) days prior to the date
of the Final Closing; and such adjustment shall be reprorated when the next
utility bills are received.
(j) Employee Expenses. Wages, benefit payments, vacation pay (or
-----------------
the value of any time accrued with respect thereto), and any other
compensation or benefits payable to all persons currently employed for work
in or in connection with an Asset and its operation (collectively,
"Employees") shall be prorated as of the date of the Final Closing; the
Operating Partnership shall not be required to assume any obligation with
respect to any employee benefits that were incurred prior to the date of
the Final Closing and for which the Operating Partnership did not receive a
credit therefor; the Asset Entity shall indemnify the Operating Partnership
against any claim in connection therewith that occurs before the date of
the Final Closing and the Operating Partnership shall indemnify the
contributors against any claim in connection therewith that occurs on or
after the date of the Final Closing. The indemnity provided herein shall
survive the date of the Final Closing.
15
<PAGE>
(k) Ground Lease Rents. Prepaid rent, nondelinquent rents,
------------------
delinquent rents, tax reimbursements, and other fees and costs under any
ground, or other leases, or parking agreements to which an Asset is subject
(collectively, "Ground Rents") shall be adjusted and prorated as of the
------------
date of the Final Closing.
(l) Condominium Charges. Assessments and capital assessments,
-------------------
including any advance payments made by an Asset Entity but only to the
extent the advance payments are attributable to the time period after the
date of the Final Closing, under any declaration of condominium to which
the Asset is subject (collectively, "Assessments") shall be adjusted and
prorated as of the date of the Final Closing.
(m) Prepaid Expenses. To the extent not otherwise contemplated
----------------
above, any amounts attributable to the advance payment of expenses shall be
adjusted and prorated as of the date of the Final Closing.
At least five (5) days prior to the date of the Final Closing, each Asset
Entity shall deliver to the Operating Partnership copies of all information and
records necessary to support the prorations hereunder. In the event any
prorations made pursuant hereto shall prove incorrect for any reason whatsoever,
either party shall be entitled to an adjustment to correct the same.
4.2 Accounts Receivable. Each Asset Entity shall retain all accounts
-------------------
receivable and other income items which are attributable to periods prior to the
date of the Final Closing. Each Asset Entity shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the appropriate Asset Entity. Except for sums actually received by the
Operating Partnership pursuant to the immediately preceding sentence, the
Operating Partnership shall assume no obligation to collect or enforce the
payment of any amounts that may be due to an Asset Entity, except that the
Operating Partnership shall render reasonable assistance, at no expense to the
Operating Partnership, to an Asset Entity after the Final Closing in the event
an Asset Entity proceeds against any third-party to collect any accounts
receivable or other income items due the Asset Entity.
4.3 Security Deposits. An amount equal to all tenant security deposits
-----------------
and all other deposits for advance reservations, or made in connection with the
space leases or the guest bookings and interest thereon, if any, and any other
amounts due with respect to such deposits shall be paid over to the Operating
Partnership by the Asset Entity at the Final Closing.
16
<PAGE>
4.4 Additional Indemnities. The Operating Partnership shall hold
----------------------
harmless, indemnify and defend each Contributor from and against: (a) any and
all obligations, liabilities, liens or encumbrances, whether direct, contingent
or consequential, arising from claims by third parties, in any way related to or
arising from events or occurrences at an Asset after the date of the Final
Closing, including, but not limited to, any damage to property or injury to or
death of any person; and (b) all costs and expenses of each Contributor,
including reasonable attorneys' fees, related to any actual or threatened
actions, suits or judgements incident to any of the foregoing, whether or not
any such action or suit is ever filed or such judgement is ever rendered.
4.5 Timing of Calculations; Cooperation. Each Contributor and the
-----------------------------------
Operating Partnership agree to use reasonable efforts to reconcile, prorate, and
adjust all of the foregoing items upon the Final Closing and, in all events,
such reconciliation, proration and adjustment shall be completed within ninety
(90) days after the date of the Final Closing. In the event any adjustments or
prorations made pursuant to this Contribution Agreement are, subsequent to Final
Closing, found to be erroneous, then either party hereto who is entitled to
additional amounts shall invoice the other party for such additional amounts as
may be owing, and such amounts shall be paid promptly by the other party upon
receipt of invoice. Such invoice shall be accompanied by reasonable
substantiating evidence.
4.6 Allocation of Adjustments. All adjustments contemplated by this
-------------------------
Article IV shall, to the extent practicable, be made by adjusting (either up or
down) the cash portion amount of the Consideration and/or the number of Units
issued to each Contributor by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to an
Asset Entity in which the Contributor owns an interest. The amount of an Asset
Entity's adjustments calculated pursuant to this Article IV allocated to each
Contributor shall be that portion equal to that Contributor's pro rata equity
interest in each Asset Entity, subject to any limitations set forth in the
Contributor's Supplemental Acquisition Exhibit.
ARTICLE V. POWER OF ATTORNEY
-----------------
5.1 Grant of Power of Attorney. Each Contributor does hereby irrevocably
--------------------------
appoint Jonathan E. Bortz, Michael Barnello, and the Operating Partnership, and
each of them individually and any successor thereof from time to time (such
persons or the Operating Partnership or any such successor of any of them acting
in his, her or its capacity as attorney-in-fact pursuant hereto, the "Attorney-
--------
in-Fact") as the true and lawful attorney-in-fact and agent of such Contributor,
- -------
to act in the name, place and stead of such Contributor:
(a) To enter into a registration rights agreement a form of which is
attached hereto as Exhibit G (the "Registration Rights Agreement").
--------- -----------------------------
17
<PAGE>
(b) To enter into a lock-up agreement (the "Lock-up Agreement") which
-----------------
provides that the Contributors will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of (or announce any offer, sale, offer of sale, contract
of sale, grant of any option to purchase or other sale or disposition of)
any REIT Common Shares or any securities convertible into or exchangeable
for or substantially similar to REIT Common Shares, for a period of one
year from the IPO Closing without the prior written consent of the managing
underwriter named in the Lock-up Agreement.
(c) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the
execution of Closing Documents, Ancillary Agreements, the Partnership
Agreement, any other documents relating to the acquisition by the Operating
Partnership of such Contributor's Interests, and any consents contemplated
by Section 6.10 hereof) and, in general, to do all things and to take all
action which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transaction
contemplated by this Contribution Agreement, the Ancillary Agreements, if
any, and the Closing Documents as fully as could such Contributor if
personally present and acting.
The Power of Attorney granted by each Contributor pursuant to this Article
V and all authority conferred hereby is granted and conferred subject to and in
consideration of the interests of the Operating Partnership, the REIT and the
other Contributors and is for the purpose of completing the transactions
contemplated by this Contribution Agreement. The Power of Attorney shall
terminate upon termination of this Contribution Agreement. The Power of
Attorney of each Contributor granted hereby and all authority conferred hereby
is coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of such Contributor or by operation of law, whether by the
death, disability, incapacity or liquidation of such Contributor or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which such Contributor is acting as a
fiduciary or fiduciaries), and if, after the execution hereof, such Contributor
shall die or become disabled or incapacitated or is liquidated, or if any other
such event or events shall occur before the completion of the transactions
contemplated by this Contribution Agreement, the Attorney-in-Fact shall
nevertheless be authorized and directed to complete all such transactions as if
such death, disability, incapacity, liquidation or other event or events had not
occurred and regardless of notice thereof. Each Contributor acknowledges that
Jon E. Bortz, Michael D. Barnello and the Operating Partnership have, and any
successor thereof acting as Attorney-in-Fact may have an economic interest in
the transactions contemplated by this Contribution Agreement. Each Contributor
agrees that, at the request of the Operating Partnership, it will promptly
execute a separate power of attorney on the same terms set forth in this Article
VI, such execution to be witnessed and notarized.
5.2 Limitation on Liability. It is understood that the Attorney-in-Fact
-----------------------
assumes no responsibility or liability to any person by virtue of the Power of
Attorney granted by each
18
<PAGE>
Contributor hereby. The Attorney-in-Fact makes no representations with respect
to and shall have no responsibility for the formation of the REIT, the
acquisitions of the Interests by the Operating Partnership, the Registration
Statement, the Prospectus or any Preliminary Prospectus, nor for any aspect of
the offering of the REIT's Common Shares, and it shall not be liable for any
error of judgment or for any act done or omitted or for any mistake of fact or
law except for its own gross negligence or bad faith. Each Contributor agrees
that the Attorney-in-Fact may consult with counsel of its own choice (who may be
counsel for the Operating Partnership or the REIT) and it shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel. It
is understood that the Attorney-in-Fact may, without breaching any express or
implied obligation to the Contributor hereunder, release, amend or modify any
other Power of Attorney granted by any other Contributor hereunder or by any
other person under any related agreement. The provisions of this Section 5.2
shall not limit or otherwise affect the obligations of the Operating Partnership
(acting for itself and not as Attorney-in-Fact) under the other Articles of this
Contribution Agreement.
5.3 Ratification; Third Party Reliance. Each Contributor does hereby
----------------------------------
ratify and confirm all that the Attorney-in-Fact shall lawfully do or cause to
be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.
ARTICLE VI. CONTRIBUTORS
------------
6.1 Amendment. Any amendment hereto shall be effective only against those
---------
parties hereto who have acknowledged in writing their consent to such amendment,
provided that the Operating Partnership may amend this Contribution Agreement
without notice to or the consent of any Contributor (a) for the purpose of
adding additional Contributors as parties hereto or deleting Contributors as
parties hereto and conforming Exhibit A in connection with such additions or
deletions and (b) to conform any Contributor's Supplemental Acquisition Exhibit
to the extent the interests set forth therein do not accurately or completely
reflect the Interest of such Contributor in the Asset Entities or (in the case
of Contributors which are themselves Asset Entities) their Properties. No
waiver of any provisions of this Contribution Agreement shall be valid unless in
writing and signed by the party against whom enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This Contribution
----------------------------------------------
Agreement and all Ancillary Agreements (a) constitute the entire agreement and
supersede conflicting provisions set forth in all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, (b) may be executed in several counterparts, each of
which will be deemed an original and all of which shall constitute one and the
same instrument and (c) shall be governed in all respects, including
19
<PAGE>
validity, interpretation and effect, by the laws of the State of New York
without giving effect to the conflict of law provisions thereof.
6.3 Assignability. This Contribution Agreement shall be binding upon, and
-------------
shall be enforceable by and inure to the benefit of, the parties hereto and
their respective heirs, legal representatives, successors and assigns; provided,
however, that this Contribution Agreement may not be assigned (except by
operation of law) by any party without the prior written consent of the other
parties, and any attempted assignment without such consent shall be void and of
no effect.
6.4 Titles. The titles and captions of the Articles, Sections and
------
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution Agreement
-----------------------
is intended, nor shall it be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any customer, affiliate,
stockholder, partner, member, director, officer or employee of any party hereto
or any other person or entity, provided, however, that Sections 5.3, 6.3 and
6.10 of this Contribution Agreement shall be enforceable by and shall inure to
the benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution Agreement, or the
------------
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Contribution Agreement and application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Contribution
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision and to execute any amendment, consent or agreement
deemed necessary or desirable by the Operating Partnership to effect such
replacement.
6.7 Equitable Remedies. The parties hereto agree that irreparable damage
------------------
would occur in the event that any of the provisions of this Contribution
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Contribution
Agreement and to enforce specifically the terms and provisions hereof in any
federal or state court located in New York (as to which the parties agree to
submit to jurisdiction for the purposes of such action), this being in addition
to any other remedy to which they are entitled under this Contribution Agreement
or otherwise at law or in equity.
6.8 Attorneys' Fees. In connection with any litigation or a court
---------------
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover
20
<PAGE>
all costs incurred, including reasonable attorneys' fees and legal assistants'
fees and costs whether incurred prior to trial, at trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given under this
-------
Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
LaSalle Hotel Operating Partnership, L.P.
220 East 42nd Street
New York, New York 10017
Attention: Michael Barnello
Phone: 212-661-6161
Telecopy: 212-687-8170
with copies to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attention: Michael F. Taylor
Phone: 212-839-5300
Telecopy: 212-839-5599
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the following address and telecopy number:
LaSalle Partners
220 East 42nd Street
New York, New York 10017
Attention: Michael Barnello
Phone: 212-661-6161
Telecopy: 212-687-8170
21
<PAGE>
with copies to:
Hagan & Associates
220 East Randolph Drive
Suite 4322
Attention: Robert K. Hagan
Phone: 312-228-2050
Telecopy: 312-228-0982
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.
----------------------------------------------------------------
(a) Each Contributor acknowledges that the agreements contained herein
and the transactions contemplated hereby and any actions taken in contemplation
of the transactions contemplated hereby may conflict with, and may not have been
contemplated by, the partnership agreement of one or more partnerships in which
one or more of such Contributor's Interests represents a direct or indirect
interest or another agreement among one or more holders of such Interests or one
or more of the partners of any such partnership. With respect to each
partnership in which an Interest of a Contributor represents a direct or
indirect interest, each Contributor expressly gives all Consents (and any
consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "Conveyance Action" means, with respect to any
-----------------
partnership having a direct or indirect ownership interest in any Asset, (i) the
conveyance or agreement to convey by a partner thereof or by any holder of an
indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any such partner or holder of any action necessary or desirable to
facilitate any of the foregoing, including, without limitation, the following
(provided that the same are taken in furtherance of the foregoing): any sale or
distribution to, or merger with, any person of a direct or indirect interest in
such partnership, the entering into any agreement with any person that grants to
such person the right to purchase a direct or indirect interest in such
partnership, and the giving of the Consents and Waivers contained in this
Section 6.10 or consents or waivers similar thereto in form or purpose. As used
herein, the term "Consents" means, with respect to any such partnership, any
--------
consent necessary or desirable under the partnership agreement of such
partnership or any other agreement among all or any of the holders of interests
therein or any other agreement relating thereto or referred to therein (i) to
permit any and all Conveyance Actions relating to such partnership or to amend
such partnership agreement and/or other agreements so that no provision thereof
prohibits, restricts, impairs or interferes with any Conveyance Action (such
22
<PAGE>
amendments to include, without limitation, the deletion of provisions which
cause a default under such agreement if interests therein are transferred for
cash), (ii) to admit the Operating Partnership as a substitute limited partner
or general partner of such partnership upon the Operating Partnership's
acquisition of a limited or general partnership interest therein, respectively,
and to adopt such amendment as is necessary or desirable to effect such
admission, (iii) to adopt any amendment as may be deemed desirable by the
Operating Partnership, either simultaneously with or immediately prior to the
acquisition of any interest therein, (iv) to continue such partnership following
the transfer of interest therein to the Operating Partnership, and (v) to merge
such partnership with and into the Operating Partnership. As used herein, the
term "Waivers" means, with respect to a partnership of which an Interest of a
-------
Contributor represents a direct or indirect interest, the waiving of any and all
rights that such Contributor may have with respect to, and (to the extent
possible) that any other person may have with respect to, or that may accrue to
such Contributor or other person upon the occurrence of, a Conveyance Action
relating to such partnership, including, but not limited to, the following
rights: rights of notice, rights to response periods, rights to purchase the
direct or indirect interests of another partner in such partnership or to sell
such Contributor's or other person's direct or indirect interest therein to
another partner, rights to sell such Contributor's or other person's direct or
indirect interest therein at a price other than as provided herein, or rights to
prohibit, limit, invalidate, otherwise restrict or impair any such Conveyance
Action or to cause a termination or dissolution of such partnership because of
such Conveyance Action. Each Contributor further covenants that such
Contributor will take no action to enjoin, or seek damages resulting from, any
Conveyance Action by any holder of a direct or indirect interest in a
partnership in which an Interest of such Contributor represents a direct or
indirect interest. The Waivers and Consents contained in this Section 6.10
shall terminate upon the termination of this Contribution Agreement, except as
to transactions completed hereunder prior to termination.
(b) Each Contributor by its execution hereof (i) with respect to each
Asset Entity in which an Interest owned by Contributor represents a direct or
indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree; and (ii) agrees that such Contributor's Consideration may be reduced to
reflect such direct transfer of assets and the consequent receipt of Units
directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent as is
necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner
23
<PAGE>
therein and/or a substitute general partner therein if the Operating Partnership
by the exercise of its Contribution Right acquires a limited partnership
interest or a general partnership interest in such partnership, respectively,
(ii) to redeem the interest of any other partner therein who has not agreed to
become a party to this Contribution Agreement or a similar contribution
agreement with the Operating Partnership, (iii) to transfer to all partners
thereof, including any partner who has not agreed to become a party to this
Contribution Agreement, Units and/or cash (provided that such Contributor
receives as a result of all such distributions and the direct payment of
consideration hereunder, an amount of cash and/or Units that is in conformity
with the Consideration of such Contributor provided for herein), and thereafter,
at the Operating Partnership's option, to dissolve, and (iv) any such other
amendment as the Operating Partnership may deem desirable, provided that such
amendment occurs simultaneously with or immediately prior to the acquisition of
the applicable partnership interest and, provided further, that such amendment
will not result in any increased liability on the part of any Contributor
hereunder or under the applicable partnership agreement. The Attorney-in-Fact
may on behalf of each Contributor execute such consents, amendments or other
instruments as it deems necessary or desirable in connection with the foregoing.
6.11 Confidentiality. All press releases or other public communications of
---------------
any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
6.12 Computation of Time. Any time period provided for herein which shall
-------------------
end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next
full business day. Except as set forth in Article IV, all times are Eastern
Time.
6.13 Survival. It is the express intention and agreement of the parties
--------
hereto that the representations, warranties and covenants of each Contributor
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.14 Time of the Essence. Time is of the essence with respect to all
-------------------
obligations of Contributor under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Contribution Agreement, or caused the Contribution Agreement to be duly executed
on its behalf, as of the date first written above.
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES,
Its General Partner
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
25
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE PLAZA PARK LIMITED PARTNERSHIP
By: LaSalle Plaza Park, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
26
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE SEAVIEW, L.P.
By: LaSalle Seaview, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
27
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE LRP BLOOMINGTON LIMITED PARTNERSHIP
By: LaSalle LRP Bloomington, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
28
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE LRP DALLAS HOTEL
LIMITED PARTNERSHIP
By: LaSalle LRP Dallas Hotel, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
29
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE LRP NEW ORLEANS HOTEL
LIMITED PARTNERSHIP
By: LaSalle LRP New Orleans, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
30
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE LRP KEY WEST HOTEL INVESTORS
LIMITED PARTNERSHIP
By: LaSalle Key West Hotel Investors, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
31
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among Lasalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE LE MONTROSE LIMITED PARTNERSHIP
By: LaSalle Le Montrose, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
32
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among Lasalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE SABAL PLAZA LIMITED PARTNERSHIP
By: LaSalle Sabal Plaza, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
33
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among Lasalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE OMAHA HOTEL INVESTORS
LIMITED PARTNERSHIP
By: LaSalle Omaha Hotel Investors, Inc.
(its general partner)
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
34
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among Lasalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
LASALLE HOTEL CO-INVESTMENT, INC.
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
35
<PAGE>
EXHIBIT A
---------
CONTRIBUTORS
------------
1. LaSalle Plaza Park Limited Partnership
2. LaSalle Seaview, L.P.
3. LaSalle LRP Bloomington Limited Partnership
4. LaSalle LRP Dallas Hotel Limited Partnership
5. LaSalle LRP New Orleans Hotel Limited Partnership
6. LaSalle LRP Key West Hotel Investors Limited Partnership
7. LaSalle Le Montrose Limited Partnership
8. LaSalle Sabal Plaza Limited Partnership
9. LaSalle Omaha Hotel Investors Limited Partnership
10. LaSalle Hotel Co-Investment, Inc.
36
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
Minimum
Asset Entities Asset Working Capital
-------------- ----- ---------------
<S> <C> <C>
1. Visalia Plaza Park Limited Partnership Holiday Inn Plaza Park $100,000
2. Seaview Hotel Investors, L.P. Marriott Seaview Resort $600,000
3. LRP Bloomington Limited Partnership Radisson Hotel South and Plaza Tower $450,000
4. LLRP Dallas Hotel Limited Partnership Le Meridien Dallas Hotel $300,000
5. LRP New Orleans Hotel Limited Partnership Le Meridien New Orleans Hotel $450,000
6. Key West Hotel Investors Limited Partnership Holiday Inn Beachside $100,000
7. Le Montrose Limited Partnership Le Montrose All Suite Hotel de Gran Luxe $130,000
8. Sabal Plaza Limited Partnership The Camberley Plaza Sabal Park $200,000
9. Omaha Hotel Investors Limited Partnership The Omaha Marriott Hotel $300,000
</TABLE>
37
<PAGE>
EXHIBIT C
---------
EXCLUDED INTERESTS
------------------
38
<PAGE>
EXHIBIT D
---------
PERMITTED ENCUMBRANCES
----------------------
39
<PAGE>
EXHIBIT E
---------
Operating Partnership Agreement
40
<PAGE>
EXHIBIT F
---------
Registration Rights Agreement
41
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE PLAZA PARK LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
55.18% general partnership interest in Visalia Plaza Park Limited Partnership
Minimum Consideration to be Received
- ------------------------------------
See attached valuation formula
42
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE SEAVIEW, L.P.
Assets to be Transferred
- ------------------------
6.7259% general partnership interest in Seaview Hotel Investors, L.P.
Consideration to be Received
- ----------------------------
See attached valuation formula
43
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE LRP BLOOMINGTON LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
21.978% general partnership interest in LRP Bloomington Limited Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
44
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE LRP DALLAS HOTEL LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
13.3912% general partnership interest in LRP Dallas Hotel Limited Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
45
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE LRP NEW ORLEANS HOTEL LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
9.669933% general partnership interest in LRP New Orleans Hotel Limited
Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
46
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE LRP KEY WEST HOTEL INVESTORS LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
12.4411% general partnership interest in Key West Hotel Investors Limited
Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
47
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE LE MONTROSE LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
27.87% general partnership interest in Le Montrose Limited Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
48
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE SABAL PLAZA LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
48.21% general partnership interest in Sabal Plaza Limited Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
49
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE OMAHA HOTEL INVESTORS LIMITED PARTNERSHIP
Assets to be Transferred
- ------------------------
13.513514% general partnership interest in Omaha Hotel Investors Limited
Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
50
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
LASALLE HOTEL CO-INVESTMENT, INC.
Assets to be Transferred
- ------------------------
1. 58.20% limited partnership interest in Le Montrose Limited Partnership
2. 51.79% limited partnership interest in Sabal Plaza Limited Partnership
Consideration to be Received
- ----------------------------
See attached valuation formula
51
<PAGE>
EXHIBIT 10.7
CONTRIBUTION AGREEMENT
BY AND AMONG
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of January 30, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES............ 2
1.1 Acquisition of Interests........................ 2
1.2 Term of Agreement............................... 2
1.3 Consideration................................... 2
1.4 Closing......................................... 2
1.5 Documents to be Delivered at Closing............ 4
1.6 Cessation of IPO................................ 5
1.7 Closing Costs................................... 5
1.8 Further Assurances.............................. 5
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS........................ 6
2.1 Title to Interests.............................. 6
2.2 Authority....................................... 7
2.3 Litigation...................................... 8
2.4 No Other Agreements to Sell..................... 8
2.5 No Brokers...................................... 8
2.6 Investment Representations and Warranties....... 8
2.7 FIRPTA Representation........................... 10
2.8 Covenant to Remedy Breaches..................... 10
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP............................. 11
3.1 Authority....................................... 11
3.2 Litigation...................................... 11
3.3 No Brokers...................................... 11
3.4 No Prior Business Activity..................... 12
3.5 Status of Units................................. 12
3.6 Tax Matters..................................... 12
3.7 Investment Company.............................. 12
3.8 Hart-Scott-Rodino Antitrust Improvements Act of
1976............................................ 12
3.9 Qualification as a REIT and a Real Estate
Operating Company............................... 12
3.10 Public Announcements............................ 12
3.11 Best Efforts to Complete IPO.................... 13
ARTICLE IV. CLOSING ADJUSTMENTS.................................. 13
4.1 Prorations...................................... 13
4.2 Accounts Receivable............................. 16
4.3 Security Deposits............................... 17
4.4 Additional Indemities........................... 17
4.5 Timing of Calculations;......................... 17
i
<PAGE>
4.6 Allocation of Adjustments......................................... 17
ARTICLE V. CONDITIONS PRECEDENT TO CONTRIBUTORS OBLIGATIONS................. 17
ARTICLE VI. MISCELLANEOUS.................................................. 17
6.1 Amendment......................................................... 17
6.2 Entire Agreement; Counterparts; Applicable Law.................... 17
6.3 Assignability..................................................... 17
6.4 Titles............................................................ 17
6.5 Third Party Beneficiary........................................... 17
6.6 Severability...................................................... 17
6.7 Equitable Remedies................................................ 18
6.8 Attorneys' Fees................................................... 18
6.9 Notices........................................................... 18
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.. 19
6.11 Convenant to Proceed in Good Faith................................ 22
6.12 Confidentiality................................................... 21
6.13 Computation of Time............................................... 21
6.14 Survival.......................................................... 21
6.15 Time of the Essence............................................... 21
EXHIBIT A: Asset Entities and Properties
EXHIBIT B: Consideration
EXHIBIT C: Permitted Encumbrances
EXHIBIT D: Operating Partnership Agreement
EXHIBIT E: Registration Rights Agreement
EXHIBIT F: Escrow Agreement
EXHIBIT G: Purchase Rights
ii
<PAGE>
CONTRIBUTION AGREEMENT
----------------------
This Contribution Agreement (the "Contribution Agreement") is executed as
----------------------
of the 30th day of January, 1998 by LaSalle Hotel Operating Partnership, L.P.
(the "Operating Partnership"), a Delaware limited partnership in formation, and
---------------------
the Contributors whose names are set forth in Exhibit A hereto (each, a
---------
"Contributor" and, collectively, the "Contributors").
- ------------ ------------
WHEREAS, in connection with the consolidation of its hotel acquisition and
ownership business, La Salle Partners has formed a Maryland real estate
investment trust (the "REIT") that will be the sole general partner and a
----
limited partner of the Operating Partnership and to effect an initial public
offering (the "IPO") of the REIT's common shares of beneficial interest ("Common
--- ------
Stock");
- -----
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in the following ten hotel properties:
Radisson Hotel South and Plaza Tower, Bloomington, Minnesota; Le Meridien New
Orleans Hotel, New Orleans, Louisiana; Le Meridien Dallas Hotel, Dallas, Texas;
The Omaha Marriott Hotel, Omaha, Nebraska; Marriott Seaview Resort, Galloway
Township, New Jersey; The Camberley Plaza Sabal Park, Tampa, Florida; Holiday
Inn Plaza Park, Visalia, California; Holiday Inn Beachside, Key West, Florida;
Le Montrose Suite Hotel de Gran Luxe, West Hollywood, California and the
LaGuardia Airport Marriott, East Elmhurst, New York;
WHEREAS, it is further understood that the Operating Partnership may
acquire, either before or after the IPO, interests in additional hotel
properties located within or outside the United States;
WHEREAS, each Contributor owns partnership interests in the limited
partnerships set forth on Exhibit A (the "Asset Entities" or each, an "Asset
--------------
Entity") which own fee or leasehold interests in the land and improvements known
by the hotel names set forth opposite the relevant Asset Entity on Exhibit A
(the "Properties"); and
----------
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the aforementioned partnership
interests owned by such Contributor and any other direct or indirect interests
such Contributor may have, whether now owned or hereinafter acquired, in the
Asset Entities or the Properties (each Property and all personal property
related thereto or to the operation thereof is hereinafter referred to as an
"Asset" and each such direct or indirect interest of a Contributor in such Asset
- ------
Entity or in such Asset, is referred to individually as an "Interest" and
--------
collectively, as such Contributor's "Interests");
---------
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
-----------------------------------------
1.1 Acquisition of Interests. At the Final Closing (defined below), each
------------------------
Contributor shall, subject to the terms and conditions of this Agreement,
contribute, transfer, assign, and convey to the Operating Partnership and the
Operating Partnership shall (i) acquire and accept from such Contributor, all
right, title and interest of such Contributor in such Contributor's Interests,
free and clear of all Encumbrances (as defined in Section 2.1 hereof) except
Permitted Encumbrances (as defined in Section 2.1 hereof), and (ii) deliver to
such Contributor such Contributor's Consideration (defined below), both in
accordance with this Contribution Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does not occur
-----------------
by June 15, 1998 (the "Termination Date"), and certain other conditions
----------------
precedent as set forth in Article V are not met, this Contribution Agreement
shall be deemed terminated and shall be of no further force and effect and
neither the Operating Partnership nor the Contributors shall have any further
obligations hereunder.
1.3 Consideration. The consideration for each Contributor's Interests
-------------
(such consideration with respect to such Contributor is hereinafter referred to
as such Contributor's "Consideration") shall be an amount payable in cash and/or
-------------
a number of Units (as hereinafter defined) as set forth in Exhibit B, subject to
the terms and provisions of Article IV hereof providing for adjustments to each
Contributor's Consideration based on closing adjustments; it being understood
that it is the intention of the parties to this Contribution Agreement that any
Minimum Working Capital (as defined in Section 4.1(c) hereof) and any balances
remaining in any furniture, fixture and equipment reserve accounts are to remain
with the Asset Entity and be transferred to the Operating Partnership. As used
herein, the term "Units" means units of limited partnership interest in the
-----
Operating Partnership.
1.4 Closing. In connection with its acquisition of the Contributors'
-------
Interests, the Operating Partnership will notify the Contributors of a closing
date, which date will be no earlier than five (5) business days after such
notification and no later than June 1, 1998, for the initial closing (the
"Initial Closing") of the acquisition contemplated by this Contribution
- ----------------
Agreement. At or before such Initial Closing, which shall be held at the
offices of Brown & Wood llp, One World Trade Center, New York, New York 10048 or
such other place as is determined by the Operating Partnership in its sole
discretion at a time specified by the Operating Partnership in its sole
discretion, the Operating Partnership and the Contributors will execute all
closing documents (the "Closing Documents") required by the Operating
-----------------
Partnership in accordance with Section 1.5 hereof and deposit the same in escrow
with Brown & Wood llp, New York, New York, pursuant to an escrow agreement in
substantially
2
<PAGE>
the form of Exhibit F hereto, as escrow agent of the Operating Partnership (the
"Closing Agent").
-------------
The transactions contemplated by this Contribution Agreement and by the
Closing Documents executed and deposited in connection with such exercise will
be consummated at the Final Closing (as hereinafter defined) only if the closing
of the IPO (the "IPO Closing") is consummated by the earlier of (a) fifteen (15)
-----------
days after the date of the Initial Closing and (b) the Termination Date, and the
conditions precedent to the closing contained in Article V hereof shall have
been met on or prior to the Final Closing Date. If the IPO Closing occurs by
such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing and upon satisfaction of the conditions
precedent set forth in Article V, cause to be delivered to
each Contributor (i) the cash portion of such Contributor's
Consideration, if any (such cash portion, the "Cash
----
Portion"), and (ii) if applicable, a certificate of the
General Partner of the Operating Partnership certifying that
such Contributor has been or will be, effective upon the
Final Closing (as hereinafter defined), admitted as a
limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will
indicate that such Contributor is the holder of the number
of Units which are called for pursuant to the Consideration
as adjusted pursuant to Article IV hereof;
(b) upon receipt of the Consideration by the Contributors set
forth in clause (a) above, the Closing Agent will release
the Closing Documents to the Operating Partnership and
deliver to the Contributor a copy of such General Partner's
certificate; and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "Final Closing").
-------------
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a material breach of or
other material exception with respect to Article 2 hereof or such contributor
has otherwise materially breached this Contribution Agreement and such breach
has not been cured within any applicable grace period (any such Contributor, a
"Non-Complying Contributor"), in which case the Operating Partnership shall, in
- --------------------------
lieu of the delivery with respect to such Contributor pursuant to clause (a)
above, notify the Closing Agent of
3
<PAGE>
such election and direct the Closing Agent to return such Contributor's Closing
Documents and Ancillary Agreements (as defined below) to such Contributor.
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be materially destroyed or materially damaged by fire or
other casualty, then this Contribution Agreement may, at the option of the
Operating Partnership, be terminated with respect to the Asset Entity, the
Assets of which have been materially destroyed or materially damaged. If, after
the occurrence of any such casualty affecting an Asset Entity's Assets, this
Contribution Agreement is not so terminated relative to such Asset Entity, the
Operating Partnership shall elect to (i) purchase the given Contributors'
Interests in such Asset Entity or Assets, as the case may be, and (ii) direct
such Contributors to pay or cause to be paid to the Operating Partnership any
sums collected under any policies of insurance because of damage due to such
casualty and otherwise assign to the Operating Partnership all rights to collect
such sums as may then be uncollected; provided, however, that the Contributors
shall not adjust or settle any insurance claim without the Operating
Partnership's prior written consent, such consent not to be unreasonably
withheld or delayed. Under such circumstances, the Consideration payable upon
such purchase shall be reduced by the amount of any deductibles under the
applicable insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15) days
after the date of the Initial Closing and (b) the Termination Date, or the
conditions precedent set forth in Article V are not met on or prior to the date
of the Final Closing then, except as set forth in Section 1.8, no party shall
have any obligations under the Closing Documents or under any agreements or
instruments executed in connection with the transactions contemplated hereunder
or thereunder (such other agreements or instruments, collectively, "Ancillary
---------
Agreements"), this Contribution Agreement, the Closing Documents and the
- ----------
Ancillary Agreements shall be deemed null and void ab initio and the Closing
---------
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent in accordance with the previous paragraph.
1.5 Documents to be Delivered at Closing. At the Initial Closing, each
------------------------------------
Contributor shall execute, acknowledge where deemed necessary by the Operating
Partnership, and deliver to the Closing Agent, in addition to any other
documents mentioned elsewhere herein, the following:
(a) An Assignment of Interests (the "Assignment"), which shall contain
----------
a warranty of title that such Contributor owns such Contributor's Interests free
and clear of all Encumbrances (as defined in Section 2.1 hereof), except, where
applicable, for the Permitted Encumbrances (as defined in Section 2.1 hereof)
and shall either (i) reaffirm the accuracy of all representations and warranties
in all material respects and the satisfaction of all covenants made by such
Contributor in Article II hereof or (ii) if such reaffirmation cannot be made,
identify those representations, warranties and covenants of Article II hereof
(other
4
<PAGE>
than Section 2.5 hereof) with respect to which circumstances have changed,
represent that such Contributor has used all reasonable efforts within its
control to prevent and remedy such breach, and reaffirm the accuracy of all
other representations and warranties and the satisfaction of all other covenants
made by such Contributor in Article II hereof.
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests and effectuate the transactions contemplated
hereby, including, without limitation, deeds, assignments of ground leases and
space leases (as applicable), transfer tax and gains tax returns and any other
filings with any applicable governmental jurisdiction in which the Operating
Partnership is required to file its partnership documentation or the recording
of the Assignment is required.
1.6 Cessation of IPO. If at any time the underwriter or underwriters
----------------
determine in good faith to abandon the IPO (the date of such determination being
referred to as the "Cessation Date"), the Operating Partnership will so advise
--------------
each Contributor in writing and thereupon all parties hereto will be relieved of
all obligations under this Contribution Agreement, all Ancillary Agreements, and
all Closing Documents (except for obligations arising under Sections 1.7, 2.5
and 3.3 hereof).
1.7 Closing Costs. The Operating Partnership agrees to pay all of the
-------------
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to this Contribution Agreement (the
"Contribution Rights"), including, without limitation, any applicable transfer
and sales taxes and any transfer fee due in connection with the assumption of
existing mortgage debt by the Operating Partnership; provided, however that
certain cost associated with the foregoing shall be deducted from the
Consideration payable to each Contributor in accordance with the adjustments set
forth in Article IV and as set forth in Exhibit B.
1.8 Further Assurances. Each Contributor will, from time to time, execute
------------------
and deliver to the Operating Partnership all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Operating Partnership may reasonably request in order to effect the
transactions contemplated by this Contribution Agreement, including instruments
or documents deemed necessary by the Operating Partnership to effect and
evidence the conveyance of such Contributor's Interests in accordance with the
terms of this Contribution Agreement. The provisions of this Section 1.8 shall
survive the Final Closing.
5
<PAGE>
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
-----------------------------
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set forth in this Article II, which
representations and warranties (unless otherwise noted) are true as of the date
hereof. As a condition to the Operating Partnership's obligation to complete
the acquisition of any Contributor's Interests such representations and
warranties must continue to be true as of the date of the Initial Closing and as
of the date of the Final Closing.
2.1 Title to Interests. Each Contributor owns its Interests beneficially
------------------
and of record, free and clear of any claim, lien, pledge, voting agreement,
option, charge, security interest, mortgage, deed of trust, encumbrance, rights
of assignment, purchase rights or other rights of any nature whatsoever
(collectively, "Encumbrances"), except as disclosed as exceptions in the title
------------
reports identified in Exhibit C for real property owned or leased by an Asset
Entity, such title reports dated on or after the date the related Property was
acquired by the Asset Entity, and subject to such further title exceptions as
are satisfactory to the Operating Partnership in its sole discretion, and as set
forth on Exhibit C attached hereto (any such encumbrance set forth in the title
---------
reports identified in Exhibit C or otherwise specifically set forth therein or
accepted by the REIT or set forth on Exhibit C, a "Permitted Encumbrance"), and
--------- ---------------------
has full power and authority to convey free and clear of any Encumbrances
(except, where applicable, the Permitted Encumbrances), its Interests and, upon
delivery of any Assignment by such Contributor conveying its Interests and
delivery of Consideration for such Interests as herein provided, the Operating
Partnership will acquire good and valid title thereto, free and clear of any
Encumbrance except Encumbrances created in favor of the Operating Partnership by
the transactions contemplated hereby and, where applicable, the Permitted
Encumbrances. No Contributor will consent to join in or in any way effect the
transfer of any Asset prior to the Final Closing except pursuant to this
Contribution Agreement. At the Final Closing, if so requested, Contributors
will execute all documents necessary to enable a title insurance company
(acceptable to the Operating Partnership, in its sole discretion) to issue to
the Operating Partnership an ALTA Form B (1987 or later) Owner's Policy and such
endorsements as the Operating Partnership may reasonably request, insuring fee
simple and/or leasehold title to all real property and improvements comprising
all or any part of the Assets to the Operating Partnership; provided that the
cost of any affirmative insurance to insure over any Encumbrances (other than
Permitted Encumbrances) with respect to each Property shall be limited to
$100,000 in the aggregate per Property, which amount shall be deducted, pro
rata, from the Consideration to be received by the Contributor who have
contributed their interest with respect to the affected Property at the Final
Closing. Each of such Contributor's Interests have been validly issued and
Contributor has funded (or will fund before the same is past due) all capital
contributions and advances to the Asset Entity in which such Interest represents
an interest that are required to be funded or advanced prior to the date hereof
and the date of the Initial Closing and the Final Closing. There are no
agreements, instruments or understandings with respect to any of such
6
<PAGE>
Contributor's Interests except as set forth in (x) the partnership agreement of
the Asset Entity in which an Interest represents a limited partner or general
partner interest or as disclosed in writing to the Operating Partnership and (y)
in any third party agreement to which an Asset Entity is currently a party,
e.g., franchise agreements, ground leases, etc. Such Contributor has no
interest, either direct or indirect, in any of the Assets except for (a) the
Interests owned by it which are the subject of this Contribution Agreement, and
(b) direct or indirect interests in partnerships or other entities which are
themselves Contributors hereunder. Such Contributor covenants that no
Encumbrance on his Interests (except, where applicable, the Permitted
Encumbrances) will be in existence as of the date of the Final Closing. In
making the representations in this Section 2.1 regarding the absence of
Encumbrances, each Contributor may assume that the consents and waivers of
rights set forth in Section 6.10 hereof have been given by all partners of
partnerships in which such Contributor's Interest represent direct or indirect
interests. Notwithstanding anything to the contrary contained herein, to the
extent that the Contributor's Interests transferred hereunder constitute
interests in partnerships or other entities ("Continuing Partnerships") which
-----------------------
will continue in existence after the consummation of the transactions
contemplated hereby, such Interests are and will remain subject to the terms and
provisions of the partnership or other organizational agreements (as amended) of
the Continuing Partnerships, including without limitation, restrictions,
options, priorities and partnership loans and partnership obligations provided
for therein.
2.2 Authority. Such Contributor has full right, authority, power and
---------
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to transfer, convey,
assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, equity of
redemption, moratorium or similar laws now or hereafter in effect relating to
the enforcement of creditors' rights and general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). Except for any breaches, violations or defaults which will be waived
or cured prior to the Initial Closing and all loans, indentures, creditor
agreements or other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing and any required consents obtained from
third parties to existing agreements to which an Asset Entity is bound e.g.,
franchise agreements, ground leases, etc., the execution, delivery and
performance of this Contribution Agreement and each such agreement, document and
instrument by or on behalf of such Contributor: (a) does not and will not
violate such Contributor's partnership agreement, operating agreement,
declaration of trust, charter or bylaws, if applicable, or other organizational
documentation; (b) does not and will not violate any foreign, federal, state,
local or other laws applicable to
7
<PAGE>
or binding on such Contributor or require such Contributor to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made or which does not
remain in effect; and (c) does not and will not result in a material breach of,
constitute a material default under, accelerate any obligation under or give
rise to a right of termination of, any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which such Contributor is a party or by which the property
of such Contributor is bound or affected, or result in the creation of any
Encumbrance (other than a Permitted Encumbrance) on any of the property or
assets of any partnership in which an Interest of such Contributor represents an
interest. In making the representations set forth in this Section 2.2, each
Contributor may assume that the consents and waivers of rights set forth in
Section 6.10 hereof have been given by all partners of partnerships or owners of
voting interests, other than the Contributors, in entities in which such
Contributor's Interests represent direct or indirect interests.
2.3 Litigation. To the best of such Contributor's knowledge, there is no
----------
litigation or proceeding, either judicial or administrative, pending or
threatened in writing materially and adversely affecting all or any portion of
such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such Contributor's ability to
enter into and perform all of its obligations under this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor represents that it has
---------------------------
not made any agreement with, and will not enter into any agreement with, and has
no obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Interests or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Interests. In making the representations set forth in this
Section 2.4, each Contributor may assume that the consents and waivers of rights
set forth in Section 6.10 hereof have been given by all partners of partnerships
or owners of voting interests, other than the Contributors, in entities which
such Contributor's Interests represent direct or indirect interests.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
----------
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless the Operating Partnership for all costs and expenses incurred
by the Operating Partnership as a result of a breach of this representation.
The provisions of this Section 2.5 shall survive termination of this
Contribution Agreement.
8
<PAGE>
2.6 Investment Representations and Warranties. Each Contributor who is
-----------------------------------------
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of the
agreement of limited partnership of the Operating Partnership (in substantially
the form attached hereto as Exhibit D) (the "Partnership Agreement"), including
---------------------
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended from time to time in accordance with its
terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such investment.
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership and/or Contributor's
position (in the case of certain individual Contributors) as a director or
executive officer of the REIT.
(d) The Units to be issued to such Contributor will be acquired by
such Contributor for its own account (or if such Contributor is a trustee, for a
trust account) for investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Contributor's right
(subject to the terms of the Units) at all times to distribute the Units to
affiliates of Contributor or to sell or otherwise dispose of all or any part of
its Units under an exemption from such registration available under the
Securities Act
9
<PAGE>
of 1933, as amended (the "Securities Act"), and applicable state securities
--------------
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Such Contributor was not formed for the specific
purpose of acquiring an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to
such Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws except as set forth in that certain Registration
Rights Agreement. Such Contributor hereby acknowledges that because of the
restrictions on transfer or assignment of such Units to be issued hereunder
which will be set forth in the Partnership Agreement and/or in a Registration
Rights Agreement (as defined in Section 5.1 hereof), such Contributor may have
to bear the economic risk of the investment commitment evidenced by this
Contribution Agreement and any Units acquired hereby for an indefinite period of
time, although (i) under the terms of the Partnership Agreement, as it will be
in effect at the time of the IPO, Units will be redeemable at the request of the
holder thereof at any time after the first anniversary of their issuance for
cash or (at the option of the REIT) for Common Stock of the REIT and (ii) the
holder of any such Common Stock issued upon a presentation of Units for
redemption will be afforded certain rights to have such Common Stock registered
for resale under the Securities Act or applicable state securities laws under
the Registration Rights Agreement as described more fully below.
(f) Each Contributor is an "accredited investor" as defined in
Regulation D under the Securities Act.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within
--------------------- --------------
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 Covenant to Remedy Breaches. Each Contributor covenants to use all
---------------------------
reasonable efforts within its control (a) to not take any action that would
cause the breach of any representation or warranty of such Contributor hereunder
and (b) to satisfy all covenants of such Contributor hereunder.
10
<PAGE>
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
--------------------------------------------------------
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
---------
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by the Operating Partnership: (a) does not
and will not violate the Partnership Agreement; (b) does not and will not
violate any foreign, federal, state and local or other laws applicable to
Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Operating Partnership is a party
or by which the property of the Operating Partnership is bound or affected.
3.2 Litigation. To the best of the Operating Partnership's knowledge,
----------
there is no litigation or proceeding, either judicial or administrative, pending
or threatened in writing, materially and adversely affecting all or any portion
of the Operating Partnership's ability to consummate the transactions
contemplated hereby. The Operating Partnership knows of no outstanding order,
writ, injunction or decree of any court, government, governmental entity or
authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair its ability to enter into and
perform all of its obligations under this Contribution Agreement.
3.3 No Brokers. The Operating Partnership has not entered into, and
----------
covenants that will not enter into, any agreement, arrangement or understanding
with any person or firm which will result in the obligation of any Contributor
to pay any finder's fee, brokerage
11
<PAGE>
commission or similar payment in connection with the transactions contemplated
hereby, and the Operating Partnership shall indemnify and hold harmless any
Contributor for all costs and expenses incurred by any Contributor as a result
of a breach of this representation. The provisions of this Section 3.3 shall
survive termination of this Contribution Agreement.
3.4 No Prior Business Activity. Neither the REIT nor the Operating
--------------------------
Partnership have engaged in any business operations prior to the date of this
Agreement.
3.5 Status of Units. The Units to be issued to each Contributor will,
---------------
when issued and delivered in accordance with the terms hereof, be validly issued
and fully paid and will be free and clear of any liens or encumbrances.
3.6 Tax Matters. Neither the REIT nor the Operating Partnership has been
-----------
required to file any federal, state and other tax returns (including information
reports) or pay any tax prior to the date of this Agreement.
3.7 Investment Company. Neither the REIT nor the Operating Partnership is
------------------
required to be registered under the Investment Company Act of 1940, as amended.
3.8 Qualification as a REIT and a Real Estate Operating Company. The REIT
-----------------------------------------------------------
shall at all times use its best efforts to meet the requirements to qualify as a
REIT [and a domestically-controlled REIT] under the Code and as a REOC within
the meaning of Plan Assets Regulations, unless and until the Board of Directors
shall determine, in accordance with the Declaration of Trust, that it is not in
the best interest of the General Partner and the holders of its beneficial
interests to continue to meet such requirements.
3.9 Best Efforts to Complete IPO. The REIT shall use its reasonable best
----------------------------
efforts to complete the IPO before May 15, 1998 and to obtain the highest public
offering price at which the underwriters are willing to complete the IPO.
ARTICLE IV. CLOSING ADJUSTMENTS
-------------------
4.1 Prorations. The Consideration for the Assets shall be subject to
----------
prorations and credits as follows to be determined as of 12:01 A.M. local time
for wherever the Asset is located on the date of the Final Closing (the
"Adjustment Time"), it being understood that the date of the Final Closing shall
be the first day of income and expense to the Operating Partnership. Except as
specifically set forth below, all allocations, prorations and adjustment shall
be made as of such time:
(a) Hotel Revenues. Except as set forth below, each Asset Entity
--------------
shall be entitled to all hotel room, food service, bar, beverage and liquor
revenues and charges and all revenues and charges from hotel room
operations, restaurant operations, hotel banquet and conference facility
operations, and other revenue of any
12
<PAGE>
kind attributable to the same for the period prior to the "Adjustment
Time". The Operating Partnership shall be entitled to all hotel room, food
service, bar, beverage and liquor revenues and charges and all revenues and
charges from restaurant operations, hotel banquet and conference facility
operations, and all other revenue of any kind attributable to any of the
same for the period on and after the "Adjustment Time". Notwithstanding
the foregoing, the Operating Partnership shall be entitled to one-half
(1/2) of the revenue from hotel rooms at each Asset for the night preceding
the date of the Final Closing. The Operating Partnership shall not give
any Asset Entity a credit at the date of the Final Closing for any accounts
receivable in connection with the Asset as of the date of the Final
Closing; but the Operating Partnership shall use reasonable efforts to
collect such accounts receivable and shall remit them to the Asset Entity
upon collection, less all reasonable third party costs of collection;
provided, however, any collection of account receivables shall first be
applied to those accruing prior to the date of the Final Closing. Each
Asset Entity shall provide the Operating Partnership a credit against the
Consideration for such Asset in an amount equal to all guest reservation
deposits held by the related hotel for hotel guests arriving or staying
after check out time for such Asset on the date of the Final Closing.
(b) Rents payable under Tenant Leases. Prepaid rent,
---------------------------------
nondelinquent rents, and tax reimbursements under any space leases
affecting the Asset (collectively, "Rents") collected subsequent to the
-----
date of the Final Closing and properly allocable to periods prior to the
date of the Final Closing, net of the Operating Partnership's costs of
collection, if any, shall be paid, promptly after receipt, to each Asset
Entity, but subject to all of the provisions of this Section hereof; and
any portion thereof properly allocable to periods subsequent to the date of
the Final Closing, if any, shall be paid to the Operating Partnership. Any
amount collected from a tenant shall first be applied to such tenant's
current monthly rental and then to past due amounts in the reverse order in
which they were due. Any advance rental payments or deposits paid by
tenants prior to the date of the Final Closing and applicable to the period
of time subsequent to the date of the Final Closing and any security
deposits or other amounts paid by tenants, together with any interest on
both thereof to the extent such interest is due to tenants, shall be
credited to the Operating Partnership on the date of the Final Closing.
Any invoices associated with tenant pass throughs shall be attributable,
prior to the Adjustment Time, to the relevant Asset Entity and after the
Adjustment Time, any to the Operating Partnership. No credit shall be
given the Asset Entity for accrued and unpaid Rent or any other non-current
sums due from tenants until said sums are paid.
(c) Minimum Working Capital; Cash and Cash Reserves. The Asset
-----------------------------------------------
shall, as of the Closing Time, have working capital equal to the amount set
forth on Exhibit B ("Minimum Working Capital"). To the extent all petty
cash funds at the Asset and all cash in any operating accounts for the
Asset exceed the amount required to fund Minimum Working Capital the
Operating Partnership shall give Asset Entity a
13
<PAGE>
credit on the date of the Final Closing. To the extent such cash is
insufficient to fund Minimum Working Capital, the deficiency shall be
deducted from the consideration payable to Contributor in accordance with
Exhibit B. Any amounts attributable to any reserves for furniture,
fixtures and equipment shall remain an asset of the Asset Entity after the
Final Closing and shall not be prorated. The Operating Partnership and the
Asset Entity shall make mutually satisfactory arrangements for counting
such cash and determining the balances in the operating accounts as of the
Adjustment Time.
(d) Trade Payables. Trade payables shall mean (for all purposes)
--------------
under this Contribution Agreement, open accounts payable to trade vendors
or suppliers of the Asset's hotel, restaurant, bar or similar facilities.
Each Asset Entity agrees to give the Operating Partnership a credit on the
date of the Final Closing for all trade payables from the Asset which have
accrued on or prior to the Adjustment Time, and the Operating Partnership
shall be obligated to pay such payables to the extent it has received a
credit from the Asset Entity on the date of the Final Closing. The
Operating Partnership agrees to pay all trade payables from each Asset
which have accrued after the Adjustment Time and shall and hereby does
indemnify and hold each Asset Entity harmless from payment of the same.
The indemnities contained or provided for in this section survive the date
of the Final Closing.
(e) Banquet and Event Deposits. The Operating Partnership shall
--------------------------
receive and be entitled to a credit against the Consideration for all
prepaid deposits for banquets and other functions that are scheduled to
take place at any Asset on or after the date of the Final Closing.
(f) Service Contracts and Equipment Leases. Any amounts prepaid
--------------------------------------
or payable under any Service Contracts or Equipment Leases or any other
agreements which the Operating Partnership has elected to assume shall be
prorated at the date of the Final Closing as of the date of the Final
Closing with the relevant Asset Entity obligated for all sums accrued prior
to the Adjustment Time and the Operating Partnership obligated for all sums
accrued after the Adjustment Time.
(g) Sales Tax. The Operating Partnership shall receive a credit
---------
for any and all sales, occupancy, use or other taxes due in connection with
the operation of any Asset which have accrued prior to the date of the
Final Closing and the applicable Asset Entity shall indemnify the Operating
Partnership for all such taxes to the extent the Operating Partnership has
not received such credit. The Operating Partnership shall be responsible
to pay all such taxes to the extent it has received a credit and shall
indemnify the relevant Asset Entity for such taxes. The indemnifications
set forth herein shall survive the date of the Final Closing.
(h) Taxes. The Operating Partnership shall receive a credit for
-----
any accrued but unpaid real estate taxes imposed in respect of any Asset
for the portion of the current year which has elapsed prior to the date of
the Final Closing (and to the
14
<PAGE>
extent unpaid, for prior years) and, any Asset Entity shall receive a
credit for any prepaid real estate taxes paid in respect of any Asset
attributable to a portion of a year after the date of the Final Closing.
If the amount of any such taxes have not been determined as of the date of
the Final Closing, such credit shall be based on the most recent
ascertainable taxes and shall be reprorated upon issuance of the final tax
bill. An Asset Entity shall give the Operating Partnership a credit for
any special assessments which are levied or charged against the Asset prior
to date of the Final Closing, whether or not then due and payable.
(i) Utilities. Utilities and fuel, including, without
---------
limitation, steam, water, electricity, gas and oil, shall be prorated as of
the date of the Final Closing. The Asset Entity shall cause the meters, if
any, for utilities to be read the day on which the Final Closing occurs and
to pay the bills rendered on the basis of such readings. If any such meter
reading for any utility is not available, then adjustment therefor shall be
made on the basis of the most recently issued bills therefor which are
based on meter readings no earlier than thirty (30) days prior to the date
of the Final Closing; and such adjustment shall be reprorated when the next
utility bills are received.
(j) Employee Expenses. Wages, benefit payments, vacation pay (or
-----------------
the value of any time accrued with respect thereto), and any other
compensation or benefits payable to all persons currently employed for work
in or in connection with an Asset and its operation (collectively,
"Employees") shall be prorated as of the date of the Final Closing; the
Operating Partnership shall not be required to assume any obligation with
respect to any employee benefits that were incurred prior to the date of
the Final Closing and for which the Operating Partnership did not receive a
credit therefor; the Asset Entity shall indemnify the Operating Partnership
against any claim in connection therewith that occurs before the date of
the Final Closing and the Operating Partnership shall indemnify the
contributors against any claim in connection therewith that occurs on or
after the date of the Final Closing. The indemnity provided herein shall
survive the date of the Final Closing.
(k) Ground Lease Rents. Prepaid rent, nondelinquent rents,
------------------
delinquent rents, tax reimbursements, and other fees and costs under any
ground, or other leases, or parking agreements to which an Asset is subject
(collectively, "Ground Rents") shall be adjusted and prorated as of the
------------
date of the Final Closing.
(l) Condominium Charges. Assessments and capital assessments,
-------------------
including any advance payments made by an Asset Entity but only to the
extent the advance payments are attributable to the time period after the
date of the Final Closing, under any declaration of condominium to which
the Asset is subject (collectively, "Assessments") shall be adjusted and
prorated as of the date of the Final Closing.
15
<PAGE>
(m) Prepaid Expenses. To the extent not otherwise contemplated
----------------
above, any amounts attributable to the advance payment of expenses shall be
adjusted and prorated as of the date of the Final Closing.
At least five (5) days prior to the date of the Final Closing, each Asset
Entity shall deliver to the Operating Partnership copies of all information and
records necessary to support the prorations hereunder. In the event any
prorations made pursuant hereto shall prove incorrect for any reason whatsoever,
either party shall be entitled to an adjustment to correct the same.
4.2 Accounts Receivable. Each Asset Entity shall retain all accounts
-------------------
receivable and other income items which are attributable to periods prior to the
date of the Final Closing. Each Asset Entity shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the appropriate Asset Entity. Except for sums actually received by the
Operating Partnership pursuant to the immediately preceding sentence, the
Operating Partnership shall assume no obligation to collect or enforce the
payment of any amounts that may be due to an Asset Entity, except that the
Operating Partnership shall render reasonable assistance, at no expense to the
Operating Partnership, to an Asset Entity after the Final Closing in the event
an Asset Entity proceeds against any third-party to collect any accounts
receivable or other income items due the Asset Entity.
4.3 Security Deposits. An amount equal to all tenant security deposits
-----------------
and all other deposits for advance reservations, or made in connection with the
space leases or the guest bookings and interest thereon, if any, and any other
amounts due with respect to such deposits shall be paid over to the Operating
Partnership at the Final Closing.
4.4 Additional Indemnities. The Operating Partnership shall hold
----------------------
harmless, indemnify and defend each Contributor from and against: (a) any and
all obligations, liabilities, liens or encumbrances, whether direct, contingent
or consequential, arising from claims by third parties, in any way related to or
arising from events or occurrences at an Asset after the date of the Final
Closing, including, but not limited to, any damage to property or injury to or
death of any person; and (b) all costs and expenses of each Contributor,
including reasonable attorneys' fees, related to any actual or threatened
actions, suits or judgements incident to any of the foregoing, whether or not
any such action or suit is ever filed or such judgement is ever rendered.
16
<PAGE>
4.5 Timing of Calculations; Cooperation. Each Contributor and the
-----------------------------------
Operating Partnership agree to use reasonable efforts to reconcile, prorate, and
adjust all of the foregoing items upon the Final Closing and, in all events,
such reconciliation, proration and adjustment shall be completed within ninety
(90) days after the date of the Final Closing. In the event any adjustments or
prorations made pursuant to this Contribution Agreement are, subsequent to Final
Closing, found to be erroneous, then either party hereto who is entitled to
additional amounts shall invoice the other party for such additional amounts as
may be owing, and such amounts shall be paid promptly by the other party upon
receipt of invoice. Such invoice shall be accompanied by reasonable
substantiating evidence.
4.6 Allocation of Adjustments. All adjustments contemplated by this
-------------------------
Article IV shall, to the extent practicable, be made by adjusting (either up or
down) the cash portion amount of the Consideration and/or the number of Units
issued to each Contributor by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to an
Asset Entity in which the Contributor owns an interest. The amount of an Asset
Entity's adjustments calculated pursuant to this Article IV allocated to each
Contributor shall be that portion equal to that Contributor's pro rata equity
interest in each Asset Entity, subject to any limitations set forth in Exhibit
B.
ARTICLE V. CONDITIONS PRECEDENT TO CONTRIBUTORS OBLIGATIONS
------------------------------------------------
5.1 Contributors' obligation to contribute, and the Operating
Partnership's obligation to acquire, the Interests in the Asset Entities from
the Contributors in accordance with this agreement shall be subject to the
following conditions precedent which must be satisfied on or prior to the Final
Closing:
(i) The Total Company Enterprise Value as defined in Exhibit B, shall
not be less than $405,000,000.
(ii) if, as a result of the breach of a contribution agreement by one
or more contributors of interests in an Asset Entity other than a
Contributor signatory hereto, in excess of one hotel Property set forth on
Exhibit A shall not be acquired or acquirable by the date of the Final
Closing by the Operating Partnership;
(iii) Steinhardt Group Inc. and Cargill Financial Services
Corporation or their designated affiliates shall each receive options,
warrants or other rights as set forth in Exhibit G to acquire Common Shares
of the REIT equal to 1.155% and 0.88% of Total Company Equity Value as
defined in Exhibit B respectively as of the IPO (including any amounts
attributable to the over-allotment option, if any additional options are
issued in connection therewith to the outside advisor of the REIT.
17
<PAGE>
ARTICLE VI. MISCELLANEOUS
-------------
6.1 Amendment. Any amendment hereto shall be effective only upon
---------
execution of all parties signatory hereto. No waiver of any provisions of this
Contribution Agreement shall be valid unless in writing and signed by the party
against whom enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This
----------------------------------------------
Contribution Agreement and all Ancillary Agreements (a) constitute the entire
agreement and supersede conflicting provisions set forth in all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, (b) may be executed in several
counterparts, each of which will be deemed an original and all of which shall
constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of New York without giving effect to the conflict of law provisions
thereof.
6.3 Assignability. This Contribution Agreement shall be binding
-------------
upon, and shall be enforceable by and inure to the benefit of, the parties
hereto and their respective heirs, legal representatives, successors and
assigns; provided, however, that this Contribution Agreement may not be assigned
by any party without the prior written consent of the other parties, and any
attempted assignment without such consent shall be void and of no effect.
6.4 Titles. The titles and captions of the Articles, Sections and
------
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution
-----------------------
Agreement is intended, nor shall it be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any customer,
affiliate, stockholder, partner, director, officer or employee of any party
hereto or any other person or entity, provided, however, that Sections 6.3 and
6.10 of this Contribution Agreement shall be enforceable by and shall inure to
the benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution Agreement,
------------
or the application thereof, is for any reason held to any extent to be invalid
or unenforceable, the remainder of this Contribution Agreement and application
of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Contribution
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision and to execute any amendment, consent or agreement
deemed necessary or desirable by the Operating Partnership to effect such
replacement.
6.7 Equitable Remedies. The parties hereto agree that irreparable
------------------
damage would occur in the event that any of the provisions of this Contribution
Agreement were not
18
<PAGE>
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Contribution Agreement and to enforce
specifically the terms and provisions hereof in any federal or state court
located in New York (as to which the parties agree to submit to jurisdiction for
the purposes of such action), this being in addition to any other remedy to
which they are entitled under this Contribution Agreement or otherwise at law or
in equity.
6.8 Attorneys' Fees. In connection with any litigation or a court
---------------
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover all costs incurred, including reasonable attorneys'
fees and legal assistants' fees and costs whether incurred prior to trial, at
trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given under
-------
this Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
LaSalle Hotel Operating Partnership, L.P.
c/o LaSalle Hotel Properties
220 East 42nd Street
New York, New York 10014
Attention: President
Phone:
Telecopy: 212-687-8170
with copies to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attention: Michael F. Taylor
Phone: 212-839-5300
Telecopy: 212-839-5599
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
19
<PAGE>
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.
---------------------------------------------------------------
(a) Each Contributor acknowledges that the agreements contained herein
and the transactions contemplated hereby and any actions taken in contemplation
of the transactions contemplated hereby may conflict with, and may not have been
contemplated by, the partnership agreement of one or more partnerships in which
one or more of such Contributor's Interests represents a direct or indirect
interest or another agreement among one or more holders of such Interests or one
or more of the partners of any such partnership. With respect to each
partnership in which an Interest of a Contributor represents a direct or
indirect interest, each Contributor expressly gives all Consents (and any
consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "Conveyance Action" means, with respect to
-----------------
any partnership having a direct or indirect ownership interest in any Asset, (i)
the conveyance or agreement to convey by a partner thereof or by any holder of
an indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any such partner or holder of any action necessary or desirable to
facilitate any of the foregoing, including, without limitation, the following
(provided that the same are taken in furtherance of the foregoing): any sale or
distribution to, or merger with, any person of a direct or indirect interest in
such partnership, the entering into any agreement with any person that grants to
such person the right to purchase a direct or indirect interest in such
partnership, and the giving of the Consents and Waivers contained in this
Section 6.10 or consents or waivers similar thereto in form or purpose. As used
herein, the term "Consents" means, with respect to any such partnership, any
--------
consent necessary or desirable under the partnership agreement of such
partnership or any other agreement among all or any of the holders of interests
therein or any other agreement relating thereto or referred to therein (i) to
permit any and all Conveyance Actions relating to such partnership or to amend
such partnership agreement and/or other agreements so that no provision thereof
prohibits, restricts, impairs or interferes with any Conveyance Action (such
amendments to include, without limitation, the deletion of provisions which
cause a default under such agreement if interests therein are transferred for
cash), (ii) to admit the Operating Partnership as a substitute limited partner
or general partner of such partnership upon the Operating Partnership's
acquisition of a limited or general partnership interest therein, respectively,
and to adopt such amendment as is necessary or desirable to effect such
admission, (iii) to adopt any amendment as may be deemed desirable by the
Operating Partnership, either simultaneously with or immediately prior to the
acquisition of any interest therein, (iv) to continue such partnership following
the transfer of interest therein to the Operating Partnership and (v) to merge
such partnership with and into the Operating Partnership. As used herein, the
term "Waivers" means, with respect to a partnership of which an Interest of a
-------
20
<PAGE>
Contributor represents a direct or indirect interest, the waiving of any and all
rights that such Contributor may have with respect to, and (to the extent
possible) that any other person may have with respect to, or that may accrue to
such Contributor or other person upon the occurrence of, a Conveyance Action
relating to such partnership, including, but not limited to, the following
rights: rights of notice, rights to response periods, rights to purchase the
direct or indirect interests of another partner in such partnership or to sell
such Contributor's or other person's direct or indirect interest therein to
another partner, rights to sell such Contributor's or other person's direct or
indirect interest therein at a price other than as provided herein, or rights to
prohibit, limit, invalidate, otherwise restrict or impair any such Conveyance
Action or to cause a termination or dissolution of such partnership because of
such Conveyance Action. Each Contributor further covenants that such
Contributor will take no action to enjoin, or seek damages resulting from, any
Conveyance Action by any holder of a direct or indirect interest in a
partnership in which an Interest of such Contributor represents a direct or
indirect interest. The Waivers and Consents contained in this Section 6.10
shall terminate upon the termination of this Contribution Agreement, except as
to transactions completed hereunder prior to termination.
(b) Each Contributor by its execution hereof (i) with respect to each
Asset Entity in which an Interest owned by Contributor represents a direct or
indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree, but only to the extent necessary to maintain the REIT's status as a REIT
under the Code; and (ii) agrees that such Contributor's Consideration may be
reduced to reflect such direct transfer of assets and the consequent receipt of
Units directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent as is
necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner therein
and/or a substitute general partner therein if the Operating Partnership by the
exercise of its Contribution Right acquires a limited partnership interest or a
general partnership interest in such partnership, respectively, (ii) to redeem
the interest of any other partner therein who has not agreed to become a party
to this Contribution Agreement or a similar contribution agreement with the
Operating Partnership, (iii) to transfer to all partners thereof, including any
partner who has not agreed to become a party to this Contribution Agreement,
Units and/or cash (provided that such Contributor receives as a result of all
such distributions and the direct payment of consideration hereunder, an amount
of cash and/or Units that is in conformity with the Consideration of such
Contributor provided for herein), and thereafter, at
21
<PAGE>
the Operating Partnership's option, to dissolve, and (iv) any such other
amendment as the Operating Partnership may deem desirable and necessary to
effectuate the business intent of this Agreement, provided that such amendment
occurs simultaneously with or immediately prior to the acquisition of the
applicable partnership interest and, provided further, that such amendment will
not result in any increased liability on the part of any Contributor hereunder
or under the applicable partnership agreement.
6.11 Covenant to Proceed in Good Faith. The Operating Partnership
---------------------------------
will use its reasonable best efforts to effectuate the business intent of this
Agreement.
6.12 Confidentiality. All press releases or other public
---------------
communications of any kind relating to the IPO or the transactions contemplated
herein to the extent such press releases or communications directly or
indirectly refer to the Contributors, and the method and timing of release for
publication thereof, will be subject to the prior approval of the Operating
Partnership and a majority of the Contributors which such approval or non-
approval shall be provided within 24 hours of the date notice is received or
shall otherwise be deemed approved. The Operating Partnership shall use its
reasonable best efforts to include the Contributor's name in such communication
upon request if agreed to by the underwriters and counsel to the Operating
Partnership, and if otherwise appropriate.
6.13 Computation of Time. Any time period provided for herein which
-------------------
shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of
the next full business day. Except as set forth in Article IV, all times are
Eastern Time.
6.14 Survival. It is the express intention and agreement of the
--------
parties hereto that the representations, warranties and covenants of each party
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.15 Time of the Essence. Time is of the essence with respect to all
-------------------
obligations of each party under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Contribution Agreement, or caused the Contribution Agreement to be duly executed
on its behalf, as of the date first written above.
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES
Its General Partner
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
23
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
SRP SEAVIEW, L.P.
By: SRA Investment Property GP II, Inc.,
Its general partner
By: /s/ Ed Kirtman
--------------------------
Name: Ed Kirtman
Title:
Address of Contributor:
650 Madison Avenue
New York, NY 10022
Telephone/Facsimile Numbers:
(212) 371-7300
(212) 371-7171
24
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
RAD BLOOM, L.P.
By: SRA GP, LLC,
Its general partner
By: /s/ Ed Kirtman
--------------------------
Name: Ed Kirtman
Title:
Address of Contributor:
650 Madison Avenue
New York, NY 10022
Telephone/Facsimile Numbers:
(212) 371-7300
(212) 371-7171
25
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
DALLAS MER HOTEL, L.P.
By: SRA Investment Property GP II, Inc.,
Its general partner
By: /s/ Ed Kirtman
--------------------------
Name: Ed Kirtman
Title:
Address of Contributor:
650 Madison Avenue
New York, NY 10022
Telephone/Facsimile Numbers:
(212) 371-7300
(212) 371-7171
26
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
NEW ORLEANS HOSPITALITY, L.P.
By: SRA Investment Property GP II, Inc.,
Its general partner
By: /s/ Ed Kirtman
--------------------------
Name: Ed Kirtman
Title:
Address of Contributor:
650 Madison Avenue
New York, NY 10022
Telephone/Facsimile Numbers:
(212) 371-7300
(212) 371-7171
27
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
KEY WEST PROPERTY, L.P.
By: SRA Investment Property GP II, Inc.,
Its general partner
By: /s/ Ed Kirtman
--------------------------
Name: Ed Kirtman
Title:
Address of Contributor:
650 Madison Avenue
New York, NY 10022
Telephone/Facsimile Numbers:
(212) 371-7300
(212) 371-7171
28
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
NEB HOTEL, L.P.
By: SRA Investment Property GP II, Inc.,
Its general partner
By: /s/ Ed Kirtman
--------------------------
Name: Ed Kirtman
Title:
Address of Contributor:
650 Madison Avenue
New York, NY 10022
Telephone/Facsimile Numbers:
(212) 371-7300
(212) 371-7171
29
<PAGE>
EXHIBIT A
---------
CONTRIBUTORS, ASSET ENTITIES AND PROPERTIES
-------------------------------------------
<TABLE>
<CAPTION>
Contributor Asset Entity Property
----------- ------------ ----------
<C> <S> <C> <C>
1. SRP Seaview, L.P. Seaview Hotel Investors, L.P. Marriott Seaview Resort
("Asset Entity I")
2. RAD Bloom, L.P. LaSalle LRP Bloomington Limited Radisson Hotel South
Partnership ("Asset Entity II") and
Plaza Tower
3. Dallas Mer Hotel, L.P. LRP Dallas Hotel Limited Partnership Le Meridien Dallas Hotel
("Asset Entity III")
4. New Orleans LRP New Orleans Hotel Limited Le Meridien New Orleans
Hospitality, L.P. Partnership ("Asset Entity IV") Hotel
5. Key West Property, L.P. Key West Hotel Investors Limited Holiday Inn Beachside
Partnership ("Asset Entity V")
6. NEB Hotel, L.P. Omaha Hotel Investors Limited Omaha Marriott Hotel
Partnership ("Asset Entity VI")
</TABLE>
30
<PAGE>
EXHIBIT B
---------
<TABLE>
<CAPTION>
Contributor Interest Consideration*
- ----------- -------- -------------
<S> <C> <C>
SRP Seaview, L.P. 46.6371% limited partnership See attached valuation formula.
interest in Asset Entity I
RAD Bloom, L.P. 56.044% limited partnership See attached valuation formula.
interest in Asset Entity II
Dallas Mer Hotel, L.P. 43.3044% limited partnership See attached valuation formula.
interest in Asset Entity III
New Orleans Hospitality, L.P. 45.165034% limited See attached valuation formula.
partnership
interest in Asset Entity IV
Key West Property, L.P. 42.8464% limited partnership See attached valuation formula.
interest in Asset Entity V
NEB Hotel, L.P. 43.243243% limited See attached valuation formula.
partnership
interest in Asset Entity VI
</TABLE>
31
<PAGE>
EXHIBIT C
---------
PERMITTED ENCUMBRANCES
----------------------
32
<PAGE>
EXHIBIT D
---------
OPERATING PARTNERSHIP AGREEMENT
33
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
34
<PAGE>
EXHIBIT F
---------
ESCROW AGREEMENT
35
<PAGE>
EXHIBIT 10.8
CONTRIBUTION AGREEMENT
BY AND AMONG
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of January 30, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES............ 2
1.1 Acquisition of Interests........................ 2
1.2 Term of Agreement............................... 2
1.3 Consideration................................... 2
1.4 Closing......................................... 2
1.5 Documents to be Delivered at Closing............ 4
1.6 Cessation of IPO................................ 5
1.7 Closing Costs................................... 5
1.8 Further Assurances.............................. 5
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS........................ 6
2.1 Title to Interests.............................. 6
2.2 Authority....................................... 7
2.3 Litigation...................................... 8
2.4 No Other Agreements to Sell..................... 8
2.5 No Brokers...................................... 8
2.6 Investment Representations and Warranties....... 9
2.7 FIRPTA Representation........................... 10
2.8 Covenant to Remedy Breaches..................... 10
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP............................. 11
3.1 Authority....................................... 11
3.2 Litigation...................................... 11
3.3 No Brokers...................................... 11
3.4 No Prior Business Activity...................... 12
3.5 Status of Units................................. 12
3.6 Tax Matters..................................... 12
3.7 Investment Company.............................. 12
3.8 Qualification as a REIT and a Real Estate
Operating Company............................... 12
3.9 Best Efforts to Complete IPO.................... 12
ARTICLE IV. CLOSING ADJUSTMENTS.................................. 12
4.1 Porations....................................... 12
4.2 Accounts Receivable............................. 16
4.3 Security Deposits............................... 16
4.4 Additional Indemnities.......................... 16
4.5 Timing of Calculations; Cooperation............. 17
4.6 Allocation of Adjustments....................... 17
i
<PAGE>
ARTICLE V. CONDITIONS PRECEDENT TO CONTRIBUTORS OBLIGATIONS................. 17
ARTICLE VI MISCELLANEOUS.................................................... 18
6.1 Amendment......................................................... 18
6.2 Entire Agreement; Counterparts; Applicable Law.................... 18
6.3 Assignablility.................................................... 18
6.4 Titles............................................................ 18
6.5 Third Party Beneficiary........................................... 18
6.6 Severability...................................................... 18
6.7 Equitable Remedies................................................ 18
6.8 Attorneys' Fees................................................... 19
6.9 Notices........................................................... 19
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.. 20
6.11 Convenant to Proceed in Good Faith................................ 22
6.12 Confidentiality................................................... 22
6.13 Computation of Time............................................... 22
6.14 Survival.......................................................... 22
6.15 Time of the Essence............................................... 22
EXHIBIT A: Asset Entities and Properties
EXHIBIT B: Consideration
EXHIBIT C: Permitted Encumbrances
EXHIBIT D: Operating Partnership Agreement
EXHIBIT E: Registration Rights Agreement
EXHIBIT F: Escrow Agreement
EXHIBIT G: Purchase Rights
ii
<PAGE>
TABLE OF CONTENTS
CONTRIBUTION AGREEMENT
----------------------
This Contribution Agreement (the "Contribution Agreement") is executed as
----------------------
of the 30th day of January, 1998 by LaSalle Hotel Operating Partnership, L.P.
(the "Operating Partnership"), a Delaware limited partnership in formation, and
---------------------
the Contributors whose names are set forth in Exhibit A hereto (each, a
---------
"Contributor" and, collectively, the "Contributors").
- ------------ ------------
WHEREAS, in connection with the consolidation of its hotel acquisition and
ownership business, La Salle Partners has formed a Maryland real estate
investment trust (the "REIT") that will be the sole general partner and a
----
limited partner of the Operating Partnership and to effect an initial public
offering (the "IPO") of the REIT's common shares of beneficial interests
---
("Common Stock");
- --------------
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in the following ten hotel properties:
Radisson Hotel South and Plaza Tower, Bloomington, Minnesota; Le Meridien New
Orleans Hotel, New Orleans, Louisiana; Le Meridien Dallas Hotel, Dallas, Texas;
The Omaha Marriott Hotel, Omaha, Nebraska; Marriott Seaview Resort, Galloway
Township, New Jersey; The Camberley Plaza Sabal Park, Tampa, Florida; Holiday
Inn Plaza Park, Visalia, California; Holiday Inn Beachside, Key West, Florida;
Le Montrose Suite Hotel de Gran Luxe, West Hollywood, California and the
LaGuardia Airport Marriott, East Elmhurst, New York;
WHEREAS, it is further understood that the Operating Partnership may
acquire, either before or after the IPO, interests in additional hotel
properties located within or outside the United States;
WHEREAS, each Contributor owns partnership interests in the limited
partnerships set forth on Exhibit A (the "Asset Entities" or each, an "Asset
--------------
Entity") which own fee or leasehold interests in the land and improvements known
by the hotel names set forth opposite the relevant Asset Entity on Exhibit A
(the "Properties"); and
----------
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the aforementioned partnership
interests owned by such Contributor and any other direct or indirect interests
such Contributor may have, whether now owned or hereinafter acquired, in the
Asset Entities or the Properties (each Property and all personal property
related thereto or to the operation thereof is hereinafter referred to as an
"Asset" and each such direct or indirect interest of a Contributor in such Asset
- ------
Entity or in such Asset, is referred to individually as an "Interest" and
--------
collectively, as such Contributor's "Interests");
---------
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
-----------------------------------------
1.1 Acquisition of Interests. At the Final Closing (defined below), each
------------------------
Contributor shall, subject to the terms and conditions of this Agreement,
contribute, transfer, assign, and convey to the Operating Partnership and the
Operating Partnership shall (i) acquire and accept from such Contributor, all
right, title and interest of such Contributor in such Contributor's Interests,
free and clear of all Encumbrances (as defined in Section 2.1 hereof) except
Permitted Encumbrances (as defined in Section 2.1 hereof), and (ii) deliver to
such Contributor such Contributor's Consideration (defined below), both in
accordance with this Contribution Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does not occur
-----------------
by June 15, 1998 (the "Termination Date"), and certain other conditions
----------------
precedent as set forth in Article V are not met, this Contribution Agreement
shall be deemed terminated and shall be of no further force and effect and
neither the Operating Partnership nor the Contributors shall have any further
obligations hereunder.
1.3 Consideration. The consideration for each Contributor's Interests
-------------
(such consideration with respect to such Contributor is hereinafter referred to
as such Contributor's "Consideration") shall be an amount payable in cash and/or
-------------
a number of Units (as hereinafter defined) as set forth in Exhibit B, subject to
the terms and provisions of Article IV hereof providing for adjustments to each
Contributor's Consideration based on closing adjustments; it being understood
that it is the intention of the parties to this Contribution Agreement that any
Minimum Working Capital (as defined in Section 4.1(c) hereof) and any balances
remaining in any furniture, fixture and equipment reserve accounts are to remain
with the Asset Entity and be transferred to the Operating Partnership. As used
herein, the term "Units" means units of limited partnership interest in the
-----
Operating Partnership.
1.4 Closing. In connection with its acquisition of the Contributors'
-------
Interests, the Operating Partnership will notify the Contributors of a closing
date, which date will be no earlier than five (5) business days after such
notification and no later than June 1, 1998, for the initial closing (the
"Initial Closing") of the acquisition contemplated by this Contribution
- ----------------
Agreement. At or before such Initial Closing, which shall be held at the
offices of Brown & Wood llp, One World Trade Center, New York, New York 10048 or
such other place as is determined by the Operating Partnership in its sole
discretion at a time specified by the Operating Partnership in its sole
discretion, the Operating Partnership and the Contributors will execute all
closing documents (the "Closing Documents") required by the Operating
-----------------
Partnership in accordance with Section 1.5 hereof and deposit the same in escrow
with Brown & Wood llp, New York, New York, pursuant to an escrow agreement in
substantially
2
<PAGE>
the form of Exhibit F hereto, as escrow agent of the Operating Partnership (the
"Closing Agent").
-------------
The transactions contemplated by this Contribution Agreement and by the
Closing Documents executed and deposited in connection with such exercise will
be consummated at the Final Closing (as hereinafter defined) only if the closing
of the IPO (the "IPO Closing") is consummated by the earlier of (a) fifteen (15)
-----------
days after the date of the Initial Closing and (b) the Termination Date, and the
conditions precedent to the closing contained in Article V hereof shall have
been met on or prior to the Final Closing Date. If the IPO Closing occurs by
such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing and upon satisfaction of the conditions
precedent set forth in Article V, cause to be delivered to
each Contributor (i) the cash portion of such Contributor's
Consideration, if any (such cash portion, the "Cash
----
Portion"), and (ii) if applicable, a certificate of the
General Partner of the Operating Partnership certifying that
such Contributor has been or will be, effective upon the
Final Closing (as hereinafter defined), admitted as a
limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will
indicate that such Contributor is the holder of the number
of Units which are called for pursuant to the Consideration
as adjusted pursuant to Article IV hereof;
(b) upon receipt of the Consideration by the Contributors set
forth in clause (a) above, the Closing Agent will release
the Closing Documents to the Operating Partnership and
deliver to the Contributor a copy of such General Partner's
certificate; and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "Final Closing").
-------------
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a material breach of or
other material exception with respect to Article 2 hereof or such contributor
has otherwise materially breached this Contribution Agreement and such breach
has not been cured within any applicable grace period (any such Contributor, a
"Non-Complying Contributor"), in which case the Operating Partnership shall, in
- --------------------------
lieu of the delivery with respect to such Contributor pursuant to clause (a)
above, notify the Closing Agent of
3
<PAGE>
such election and direct the Closing Agent to return such Contributor's Closing
Documents and Ancillary Agreements (as defined below) to such Contributor.
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be materially destroyed or materially damaged by fire or
other casualty, then this Contribution Agreement may, at the option of the
Operating Partnership, be terminated with respect to the Asset Entity, the
Assets of which have been materially destroyed or materially damaged. If, after
the occurrence of any such casualty affecting an Asset Entity's Assets, this
Contribution Agreement is not so terminated relative to such Asset Entity, the
Operating Partnership shall elect to (i) purchase the given Contributors'
Interests in such Asset Entity or Assets, as the case may be, and (ii) direct
such Contributors to pay or cause to be paid to the Operating Partnership any
sums collected under any policies of insurance because of damage due to such
casualty and otherwise assign to the Operating Partnership all rights to collect
such sums as may then be uncollected; provided, however, that the Contributors
shall not adjust or settle any insurance claim without the Operating
Partnership's prior written consent, such consent not to be unreasonably
withheld or delayed. Under such circumstances, the Consideration payable upon
such purchase shall be reduced by the amount of any deductibles under the
applicable insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15) days
after the date of the Initial Closing and (b) the Termination Date, or the
conditions precedent set forth in Article V are not met on or prior to the date
of the Final Closing then, except as set forth in Section 1.8, no party shall
have any obligations under the Closing Documents or under any agreements or
instruments executed in connection with the transactions contemplated hereunder
or thereunder (such other agreements or instruments, collectively, "Ancillary
---------
Agreements"), this Contribution Agreement, the Closing Documents and the
- ----------
Ancillary Agreements shall be deemed null and void ab initio and the Closing
---------
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent in accordance with the previous paragraph.
1.5 Documents to be Delivered at Closing. At the Initial Closing, each
------------------------------------
Contributor shall execute, acknowledge where deemed necessary by the Operating
Partnership, and deliver to the Closing Agent, in addition to any other
documents mentioned elsewhere herein, the following:
(a) An Assignment of Interests (the "Assignment"), which shall contain
----------
a warranty of title that such Contributor owns such Contributor's Interests free
and clear of all Encumbrances (as defined in Section 2.1 hereof), except, where
applicable, for the Permitted Encumbrances (as defined in Section 2.1 hereof)
and shall either (i) reaffirm the accuracy of all representations and warranties
in all material respects and the satisfaction of all covenants made by such
Contributor in Article II hereof or (ii) if such reaffirmation cannot be made,
identify those representations, warranties and covenants of Article II hereof
(other
4
<PAGE>
than Section 2.5 hereof) with respect to which circumstances have changed,
represent that such Contributor has used all reasonable efforts within its
control to prevent and remedy such breach, and reaffirm the accuracy of all
other representations and warranties and the satisfaction of all other covenants
made by such Contributor in Article II hereof.
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests and effectuate the transactions contemplated
hereby, including, without limitation, deeds, assignments of ground leases and
space leases (as applicable), transfer tax and gains tax returns and any other
filings with any applicable governmental jurisdiction in which the Operating
Partnership is required to file its partnership documentation or the recording
of the Assignment is required.
1.6 Cessation of IPO. If at any time the underwriter or underwriters
----------------
determine in good faith to abandon the IPO (the date of such determination being
referred to as the "Cessation Date"), the Operating Partnership will so advise
--------------
each Contributor in writing and thereupon all parties hereto will be relieved of
all obligations under this Contribution Agreement, all Ancillary Agreements, and
all Closing Documents (except for obligations arising under Sections 1.7, 2.5
and 3.3 hereof).
1.7 Closing Costs. The Operating Partnership agrees to pay all of the
-------------
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to this Contribution Agreement (the
"Contribution Rights"), including, without limitation, any applicable transfer
and sales taxes and any transfer fee due in connection with the assumption of
existing mortgage debt by the Operating Partnership; provided, however that
certain cost associated with the foregoing shall be deducted from the
Consideration payable to each Contributor in accordance with the adjustments set
forth in Article IV and as set forth in Exhibit B.
1.8 Further Assurances. Each Contributor will, from time to time, execute
------------------
and deliver to the Operating Partnership all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Operating Partnership may reasonably request in order to effect the
transactions contemplated by this Contribution Agreement, including instruments
or documents deemed necessary by the Operating Partnership to effect and
evidence the conveyance of such Contributor's Interests in accordance with the
terms of this Contribution Agreement. The provisions of this Section 1.8 shall
survive the Final Closing.
5
<PAGE>
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
-----------------------------
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set forth in this Article II, which
representations and warranties (unless otherwise noted) are true as of the date
hereof. As a condition to the Operating Partnership's obligation to complete
the acquisition of any Contributor's Interests such representations and
warranties must continue to be true as of the date of the Initial Closing and as
of the date of the Final Closing.
2.1 Title to Interests. Each Contributor owns its Interests beneficially
------------------
and of record, free and clear of any claim, lien, pledge, voting agreement,
option, charge, security interest, mortgage, deed of trust, encumbrance, rights
of assignment, purchase rights or other rights of any nature whatsoever
(collectively, "Encumbrances"), except as disclosed as exceptions in the title
------------
reports identified in Exhibit C for real property owned or leased by an Asset
Entity, such title reports dated on or after the date the related Property was
acquired by the Asset Entity, and subject to such further title exceptions as
are satisfactory to the Operating Partnership in its sole discretion, and as set
forth on Exhibit C attached hereto (any such encumbrance set forth in the title
---------
reports identified in Exhibit C or otherwise specifically set forth therein or
accepted by the REIT or set forth on Exhibit C, a "Permitted Encumbrance"), and
--------- ---------------------
has full power and authority to convey free and clear of any Encumbrances
(except, where applicable, the Permitted Encumbrances), its Interests and, upon
delivery of any Assignment by such Contributor conveying its Interests and
delivery of Consideration for such Interests as herein provided, the Operating
Partnership will acquire good and valid title thereto, free and clear of any
Encumbrance except Encumbrances created in favor of the Operating Partnership by
the transactions contemplated hereby and, where applicable, the Permitted
Encumbrances. No Contributor will consent to join in or in any way effect the
transfer of any Asset prior to the Final Closing except pursuant to this
Contribution Agreement. At the Final Closing, if so requested, Contributors
will execute all documents necessary to enable a title insurance company
(acceptable to the Operating Partnership, in its sole discretion) to issue to
the Operating Partnership an ALTA Form B (1987 or later) Owner's Policy and such
endorsements as the Operating Partnership may reasonably request, insuring fee
simple and/or leasehold title to all real property and improvements comprising
all or any part of the Assets to the Operating Partnership; provided that the
cost of any affirmative insurance to insure over any incumbrance with respect to
each Property shall be limited to $100,000 in the aggregate per Property, which
amount shall be deducted, pro rata, from the Consideration to be received by the
Contributor who have contributed their interest with respect to the affected
Property at the Final Closing. Each of such Contributor's Interests have been
validly issued and Contributor has funded (or will fund before the same is past
due) all capital contributions and advances to the Asset Entity in which such
Interest represents an interest that are required to be funded or advanced prior
to the date hereof and the date of the Initial Closing and the Final Closing.
There are no agreements, instruments or understandings with respect to any of
such Contributor's Interests except as set forth in (x) the
6
<PAGE>
partnership agreement of the Asset Entity in which an Interest represents a
limited partner or general partner interest or as disclosed in writing to the
Operating Partnership and (y) in any third party agreement to which an Asset
Entity is currently a party, e.g., franchise agreements, ground leases, etc.
Such Contributor has no interest, either direct or indirect, in any of the
Assets except for (a) the Interests owned by it which are the subject of this
Contribution Agreement, and (b) direct or indirect interests in partnerships or
other entities which are themselves Contributors hereunder. Such Contributor
covenants that no Encumbrance on his Interests (except, where applicable, the
Permitted Encumbrances) will be in existence as of the date of the Final
Closing. In making the representations in this Section 2.1 regarding the
absence of Encumbrances, each Contributor may assume that the consents and
waivers of rights set forth in Section 6.10 hereof have been given by all
partners of partnerships in which such Contributor's Interest represent direct
or indirect interests. Notwithstanding anything to the contrary contained
herein, to the extent that the Contributor's Interests transferred hereunder
constitute interests in partnerships or other entities ("Continuing
----------
Partnerships") which will continue in existence after the consummation of the
transactions contemplated hereby, such Interests are and will remain subject to
the terms and provisions of the partnership or other organizational agreements
(as amended) of the Continuing Partnerships, including without limitation,
restrictions, options, priorities and partnership loans and partnership
obligations provided for therein.
2.2 Authority. Such Contributor has full right, authority, power and
---------
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to transfer, convey,
assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, equity of
redemption, moratorium or similar laws now or hereafter in effect relating to
the enforcement of creditors' rights and general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). Except for any breaches, violations or defaults which will be waived
or cured prior to the Initial Closing and all loans, indentures, creditor
agreements or other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing and any required consents obtained from
third parties to existing agreements to which an Asset Entity is bound e.g.,
franchise agreements, ground leases, etc., the execution, delivery and
performance of this Contribution Agreement and each such agreement, document and
instrument by or on behalf of such Contributor: (a) does not and will not
violate such Contributor's partnership agreement, operating agreement,
declaration of trust, charter or bylaws, if applicable, or other organizational
documentation; (b) does not and will not violate any foreign, federal, state,
local or other laws applicable to or binding on such Contributor or require such
Contributor to obtain any approval, consent or
7
<PAGE>
waiver of, or make any filing with, any person or authority (governmental or
otherwise) that has not been obtained or made or which does not remain in
effect; and (c) does not and will not result in a material breach of, constitute
a material default under, accelerate any obligation under or give rise to a
right of termination of, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Contributor is a party or by which the property of such Contributor
is bound or affected, or result in the creation of any Encumbrance (other than a
Permitted Encumbrance) on any of the property or assets of any partnership in
which an Interest of such Contributor represents an interest. In making the
representations set forth in this Section 2.2, each Contributor may assume that
the consents and waivers of rights set forth in Section 6.10 hereof have been
given by all partners of partnerships or owners of voting interests, other than
the Contributors, in entities in which such Contributor's Interests represent
direct or indirect interests.
2.3 Litigation. To the best of such Contributor's knowledge, there is no
----------
litigation or proceeding, either judicial or administrative, pending or
threatened in writing materially and adversely affecting all or any portion of
such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such Contributor's ability to
enter into and perform all of its obligations under this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor represents that it has
---------------------------
not made any agreement with, and will not enter into any agreement with, and has
no obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Interests or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Interests. In making the representations set forth in this
Section 2.4, each Contributor may assume that the consents and waivers of rights
set forth in Section 6.10 hereof have been given by all partners of partnerships
or owners of voting interests, other than the Contributors, in entities which
such Contributor's Interests represent direct or indirect interests.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
----------
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless the Operating Partnership for all costs and expenses incurred
by the Operating Partnership as a result of a breach of this representation.
The provisions of this Section 2.5 shall survive termination of this
Contribution Agreement.
8
<PAGE>
2.6 Investment Representations and Warranties. Each Contributor who is
-----------------------------------------
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of the
agreement of limited partnership of the Operating Partnership (in substantially
the form attached hereto as Exhibit D) (the "Partnership Agreement"), including
---------------------
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended from time to time in accordance with its
terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such investment.
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership and/or Contributor's
position (in the case of certain individual Contributors) as a director or
executive officer of the REIT.
(d) The Units to be issued to such Contributor will be acquired by
such Contributor for its own account (or if such Contributor is a trustee, for a
trust account) for investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Contributor's right
(subject to the terms of the Units) at all times to distribute the Units to
affiliates of Contributor or to sell or otherwise dispose of all or any part of
its Units under an exemption from such registration available under the
Securities Act
9
<PAGE>
of 1933, as amended (the "Securities Act"), and applicable state securities
--------------
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Such Contributor was not formed for the specific
purpose of acquiring an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to
such Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws except as set forth in that certain Registration
Rights Agreement. Such Contributor hereby acknowledges that because of the
restrictions on transfer or assignment of such Units to be issued hereunder
which will be set forth in the Partnership Agreement and/or in a Registration
Rights Agreement (as defined in Section 5.1 hereof), such Contributor may have
to bear the economic risk of the investment commitment evidenced by this
Contribution Agreement and any Units acquired hereby for an indefinite period of
time, although (i) under the terms of the Partnership Agreement, as it will be
in effect at the time of the IPO, Units will be redeemable at the request of the
holder thereof at any time after the first anniversary of their issuance for
cash or (at the option of the REIT) for Common Stock of the REIT and (ii) the
holder of any such Common Stock issued upon a presentation of Units for
redemption will be afforded certain rights to have such Common Stock registered
for resale under the Securities Act or applicable state securities laws under
the Registration Rights Agreement as described more fully below.
(f) Each Contributor is an "accredited investor" as defined in
Regulation D under the Securities Act.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within
--------------------- --------------
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 Covenant to Remedy Breaches. Each Contributor covenants to use all
---------------------------
reasonable efforts within its control (a) to not take any action that would
cause the breach of any representation or warranty of such Contributor hereunder
and (b) to satisfy all covenants of such Contributor hereunder.
10
<PAGE>
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
--------------------------------------------------------
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
---------
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by the Operating Partnership: (a) does not
and will not violate the Partnership Agreement; (b) does not and will not
violate any foreign, federal, state and local or other laws applicable to
Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Operating Partnership is a party
or by which the property of the Operating Partnership is bound or affected.
3.2 Litigation. To the best of the Operating Partnership's knowledge,
----------
there is no litigation or proceeding, either judicial or administrative, pending
or threatened in writing, materially and adversely affecting all or any portion
of the Operating Partnership's ability to consummate the transactions
contemplated hereby. The Operating Partnership knows of no outstanding order,
writ, injunction or decree of any court, government, governmental entity or
authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair its ability to enter into and
perform all of its obligations under this Contribution Agreement.
3.3 No Brokers. The Operating Partnership has not entered into, and
----------
covenants that will not enter into, any agreement, arrangement or understanding
with any person or firm which will result in the obligation of any Contributor
to pay any finder's fee, brokerage
11
<PAGE>
commission or similar payment in connection with the transactions contemplated
hereby, and the Operating Partnership shall indemnify and hold harmless any
Contributor for all costs and expenses incurred by any Contributor as a result
of a breach of this representation. The provisions of this Section 3.3 shall
survive termination of this Contribution Agreement.
3.4 No Prior Business Activity. Neither the REIT nor the Operating
--------------------------
Partnership have engaged in any business operations prior to the date of this
Agreement.
3.5 Status of Units. The Units to be issued to each Contributor will,
---------------
when issued and delivered in accordance with the terms hereof, be validly issued
and fully paid and will be free and clear of any liens or encumbrances.
3.6 Tax Matters. Neither the REIT nor the Operating Partnership has been
-----------
required to file any federal, state and other tax returns (including information
reports) or pay any tax prior to the date of this Agreement.
3.7 Investment Company. Neither the REIT nor the Operating Partnership is
------------------
required to be registered under the Investment Company Act of 1940, as amended.
3.8 Qualification as a REIT and a Real Estate Operating Company. The REIT
-----------------------------------------------------------
shall at all times use its best efforts to meet the requirements to qualify as a
REIT [and a domestically-controlled REIT] under the Code and as a REOC within
the meaning of Plan Assets Regulations, unless and until the Board of Directors
shall determine, in accordance with the Declaration of Trust, that it is not in
the best interest of the General Partner and the holders of its beneficial
interests to continue to meet such requirements.
3.9 Best Efforts to Complete IPO. The REIT shall use its reasonable best
----------------------------
efforts to complete the IPO before May 15, 1998 and to obtain the highest public
offering price at which the underwriters are willing to complete the IPO.
ARTICLE IV. CLOSING ADJUSTMENTS
-------------------
4.1 Prorations. The Consideration for the Assets shall be subject to
----------
prorations and credits as follows to be determined as of 12:01 A.M. local time
for wherever the Asset is located on the date of the Final Closing (the
"Adjustment Time"), it being understood that the date of the Final Closing shall
be the first day of income and expense to the Operating Partnership. Except as
specifically set forth below, all allocations, prorations and adjustment shall
be made as of such time:
(a) Hotel Revenues. Except as set forth below, each Asset Entity
--------------
shall be entitled to all hotel room, food service, bar, beverage and liquor
revenues and charges and all revenues and charges from hotel room
operations, restaurant operations, hotel banquet and conference facility
operations, and other revenue of any
12
<PAGE>
kind attributable to the same for the period prior to the "Adjustment
Time". The Operating Partnership shall be entitled to all hotel room, food
service, bar, beverage and liquor revenues and charges and all revenues and
charges from restaurant operations, hotel banquet and conference facility
operations, and all other revenue of any kind attributable to any of the
same for the period on and after the "Adjustment Time". Notwithstanding
the foregoing, the Operating Partnership shall be entitled to one-half
(1/2) of the revenue from hotel rooms at each Asset for the night preceding
the date of the Final Closing. The Operating Partnership shall not give
any Asset Entity a credit at the date of the Final Closing for any accounts
receivable in connection with the Asset as of the date of the Final
Closing; but the Operating Partnership shall use reasonable efforts to
collect such accounts receivable and shall remit them to the Asset Entity
upon collection, less all reasonable third party costs of collection;
provided, however, any collection of account receivables shall first be
applied to those accruing prior to the date of the Final Closing. Each
Asset Entity shall provide the Operating Partnership a credit against the
Consideration for such Asset in an amount equal to all guest reservation
deposits held by the related hotel for hotel guests arriving or staying
after check out time for such Asset on the date of the Final Closing.
(b) Rents payable under Tenant Leases. Prepaid rent,
---------------------------------
nondelinquent rents, and tax reimbursements under any space leases
affecting the Asset (collectively, "Rents") collected subsequent to the
-----
date of the Final Closing and properly allocable to periods prior to the
date of the Final Closing, net of the Operating Partnership's costs of
collection, if any, shall be paid, promptly after receipt, to each Asset
Entity, but subject to all of the provisions of this Section hereof; and
any portion thereof properly allocable to periods subsequent to the date of
the Final Closing, if any, shall be paid to the Operating Partnership. Any
amount collected from a tenant shall first be applied to such tenant's
current monthly rental and then to past due amounts in the reverse order in
which they were due. Any advance rental payments or deposits paid by
tenants prior to the date of the Final Closing and applicable to the period
of time subsequent to the date of the Final Closing and any security
deposits or other amounts paid by tenants, together with any interest on
both thereof to the extent such interest is due to tenants, shall be
credited to the Operating Partnership on the date of the Final Closing.
Any invoices associated with tenant pass throughs shall be attributable,
prior to the Adjustment Time, to the relevant Asset Entity and after the
Adjustment Time, any to the Operating Partnership. No credit shall be
given the Asset Entity for accrued and unpaid Rent or any other non-current
sums due from tenants until said sums are paid.
(c) Minimum Working Capital; Cash and Cash Reserves. The Asset
-----------------------------------------------
shall, as of the Closing Time, have working capital equal to the amount set
forth on Exhibit B ("Minimum Working Capital"). To the extent all petty
cash funds at the Asset and all cash in any operating accounts for the
Asset exceed the amount required to fund Minimum Working Capital the
Operating Partnership shall give Asset Entity a
13
<PAGE>
credit on the date of the Final Closing. To the extent such cash is
insufficient to fund Minimum Working Capital, the deficiency shall be
deducted from the consideration payable to Contributor in accordance with
Exhibit B. Any amounts attributable to any reserves for furniture,
fixtures and equipment shall remain an asset of the Asset Entity after the
Final Closing and shall not be prorated. The Operating Partnership and the
Asset Entity shall make mutually satisfactory arrangements for counting
such cash and determining the balances in the operating accounts as of the
Adjustment Time.
(d) Trade Payables. Trade payables shall mean (for all purposes)
--------------
under this Contribution Agreement, open accounts payable to trade vendors
or suppliers of the Asset's hotel, restaurant, bar or similar facilities.
Each Asset Entity agrees to give the Operating Partnership a credit on the
date of the Final Closing for all trade payables from the Asset which have
accrued on or prior to the Adjustment Time, and the Operating Partnership
shall be obligated to pay such payables to the extent it has received a
credit from the Asset Entity on the date of the Final Closing. The
Operating Partnership agrees to pay all trade payables from each Asset
which have accrued after the Adjustment Time and shall and hereby does
indemnify and hold each Asset Entity harmless from payment of the same.
The indemnities contained or provided for in this section survive the date
of the Final Closing.
(e) Banquet and Event Deposits. The Operating Partnership shall
--------------------------
receive and be entitled to a credit against the Consideration for all
prepaid deposits for banquets and other functions that are scheduled to
take place at any Asset on or after the date of the Final Closing.
(f) Service Contracts and Equipment Leases. Any amounts prepaid
--------------------------------------
or payable under any Service Contracts or Equipment Leases or any other
agreements which the Operating Partnership has elected to assume shall be
prorated at the date of the Final Closing as of the date of the Final
Closing with the relevant Asset Entity obligated for all sums accrued prior
to the Adjustment Time and the Operating Partnership obligated for all sums
accrued after the Adjustment Time.
(g) Sales Tax. The Operating Partnership shall receive a credit
---------
for any and all sales, occupancy, use or other taxes due in connection with
the operation of any Asset which have accrued prior to the date of the
Final Closing and the applicable Asset Entity shall indemnify the Operating
Partnership for all such taxes to the extent the Operating Partnership has
not received such credit. The Operating Partnership shall be responsible
to pay all such taxes to the extent it has received a credit and shall
indemnify the relevant Asset Entity for such taxes. The indemnifications
set forth herein shall survive the date of the Final Closing.
(h) Taxes. The Operating Partnership shall receive a credit for
-----
any accrued but unpaid real estate taxes imposed in respect of any Asset
for the portion of the current year which has elapsed prior to the date of
the Final Closing (and to the
14
<PAGE>
extent unpaid, for prior years) and, any Asset Entity shall receive a
credit for any prepaid real estate taxes paid in respect of any Asset
attributable to a portion of a year after the date of the Final Closing.
If the amount of any such taxes have not been determined as of the date of
the Final Closing, such credit shall be based on the most recent
ascertainable taxes and shall be reprorated upon issuance of the final tax
bill. An Asset Entity shall give the Operating Partnership a credit for
any special assessments which are levied or charged against the Asset prior
to date of the Final Closing, whether or not then due and payable.
(i) Utilities. Utilities and fuel, including, without
---------
limitation, steam, water, electricity, gas and oil, shall be prorated as of
the date of the Final Closing. The Asset Entity shall cause the meters, if
any, for utilities to be read the day on which the Final Closing occurs and
to pay the bills rendered on the basis of such readings. If any such meter
reading for any utility is not available, then adjustment therefor shall be
made on the basis of the most recently issued bills therefor which are
based on meter readings no earlier than thirty (30) days prior to the date
of the Final Closing; and such adjustment shall be reprorated when the next
utility bills are received.
(j) Employee Expenses. Wages, benefit payments, vacation pay (or
-----------------
the value of any time accrued with respect thereto), and any other
compensation or benefits payable to all persons currently employed for work
in or in connection with an Asset and its operation (collectively,
"Employees") shall be prorated as of the date of the Final Closing; the
Operating Partnership shall not be required to assume any obligation with
respect to any employee benefits that were incurred prior to the date of
the Final Closing and for which the Operating Partnership did not receive a
credit therefor; the Asset Entity shall indemnify the Operating Partnership
against any claim in connection therewith that occurs before the date of
the Final Closing and the Operating Partnership shall indemnify the
contributors against any claim in connection therewith that occurs on or
after the date of the Final Closing. The indemnity provided herein shall
survive the date of the Final Closing.
(k) Ground Lease Rents. Prepaid rent, nondelinquent rents,
------------------
delinquent rents, tax reimbursements, and other fees and costs under any
ground, or other leases, or parking agreements to which an Asset is subject
(collectively, "Ground Rents") shall be adjusted and prorated as of the
------------
date of the Final Closing.
(l) Condominium Charges. Assessments and capital assessments,
-------------------
including any advance payments made by an Asset Entity but only to the
extent the advance payments are attributable to the time period after the
date of the Final Closing, under any declaration of condominium to which
the Asset is subject (collectively, "Assessments") shall be adjusted and
prorated as of the date of the Final Closing.
15
<PAGE>
(m) Prepaid Expenses. To the extent not otherwise contemplated
----------------
above, any amounts attributable to the advance payment of expenses shall be
adjusted and prorated as of the date of the Final Closing.
At least five (5) days prior to the date of the Final Closing, each Asset
Entity shall deliver to the Operating Partnership copies of all information and
records necessary to support the prorations hereunder. In the event any
prorations made pursuant hereto shall prove incorrect for any reason whatsoever,
either party shall be entitled to an adjustment to correct the same.
4.2 Accounts Receivable. Each Asset Entity shall retain all accounts
-------------------
receivable and other income items which are attributable to periods prior to the
date of the Final Closing. Each Asset Entity shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the appropriate Asset Entity. Except for sums actually received by the
Operating Partnership pursuant to the immediately preceding sentence, the
Operating Partnership shall assume no obligation to collect or enforce the
payment of any amounts that may be due to an Asset Entity, except that the
Operating Partnership shall render reasonable assistance, at no expense to the
Operating Partnership, to an Asset Entity after the Final Closing in the event
an Asset Entity proceeds against any third-party to collect any accounts
receivable or other income items due the Asset Entity.
4.3 Security Deposits. An amount equal to all tenant security deposits
-----------------
and all other deposits for advance reservations, or made in connection with the
space leases or the guest bookings and interest thereon, if any, and any other
amounts due with respect to such deposits shall be paid over to the Operating
Partnership at the Final Closing.
4.4 Additional Indemnities. The Operating Partnership shall hold
----------------------
harmless, indemnify and defend each Contributor from and against: (a) any and
all obligations, liabilities, liens or encumbrances, whether direct, contingent
or consequential, arising from claims by third parties, in any way related to or
arising from events or occurrences at an Asset after the date of the Final
Closing, including, but not limited to, any damage to property or injury to or
death of any person; and (b) all costs and expenses of each Contributor,
including reasonable attorneys' fees, related to any actual or threatened
actions, suits or judgements incident to any of the foregoing, whether or not
any such action or suit is ever filed or such judgement is ever rendered.
16
<PAGE>
4.5 Timing of Calculations; Cooperation. Each Contributor and the
-----------------------------------
Operating Partnership agree to use reasonable efforts to reconcile, prorate, and
adjust all of the foregoing items upon the Final Closing and, in all events,
such reconciliation, proration and adjustment shall be completed within ninety
(90) days after the date of the Final Closing. In the event any adjustments or
prorations made pursuant to this Contribution Agreement are, subsequent to Final
Closing, found to be erroneous, then either party hereto who is entitled to
additional amounts shall invoice the other party for such additional amounts as
may be owing, and such amounts shall be paid promptly by the other party upon
receipt of invoice. Such invoice shall be accompanied by reasonable
substantiating evidence.
4.6 Allocation of Adjustments. All adjustments contemplated by this
-------------------------
Article IV shall, to the extent practicable, be made by adjusting (either up or
down) the cash portion amount of the Consideration and/or the number of Units
issued to each Contributor by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to an
Asset Entity in which the Contributor owns an interest. The amount of an Asset
Entity's adjustments calculated pursuant to this Article IV allocated to each
Contributor shall be that portion equal to that Contributor's pro rata equity
interest in each Asset Entity, subject to any limitations set forth in Exhibit
B.
ARTICLE V. CONDITIONS PRECEDENT TO CONTRIBUTORS OBLIGATIONS
------------------------------------------------
5.1 Contributors' obligation to contribute, and the Operating
Partnership's obligation to acquire, the Interests in the Asset Entities from
the Contributors in accordance with this agreement shall be subject to the
following conditions precedent which must be satisfied on or prior to the Final
Closing:
(i) The Total Company Enterprise Value as defined in Exhibit B, shall
not be less than $405,000,000.
(ii) if, as a result of the breach of a contribution agreement by one
or more contributors of interests in an Asset Entity other than a
Contributor signatory hereto, in excess of one hotel Property set forth on
Exhibit A shall not be acquired or acquirable by the date of the Final
Closing by the Operating Partnership;
(iii) Steinhardt Group Inc. and Cargill Financial Services
Corporation or their designated affiliates shall each receive options,
warrants or other rights as set forth in Exhibit G to acquire Common Shares
of the REIT equal to 1.155% and 0.88% of Total Company Equity Value as
defined in Exhibit B respectively as of the IPO (including any amounts
attributable to the over-allotment option, if any additional options are
issued in connection therewith to the outside advisor of the REIT.
17
<PAGE>
ARTICLE VI. MISCELLANEOUS
-------------
6.1 Amendment. Any amendment hereto shall be effective only upon
---------
execution of all parties signatory hereto. No waiver of any provisions of this
Contribution Agreement shall be valid unless in writing and signed by the party
against whom enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This
----------------------------------------------
Contribution Agreement and all Ancillary Agreements (a) constitute the entire
agreement and supersede conflicting provisions set forth in all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, (b) may be executed in several
counterparts, each of which will be deemed an original and all of which shall
constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of New York without giving effect to the conflict of law provisions
thereof.
6.3 Assignability. This Contribution Agreement shall be binding
-------------
upon, and shall be enforceable by and inure to the benefit of, the parties
hereto and their respective heirs, legal representatives, successors and
assigns; provided, however, that this Contribution Agreement may not be assigned
by any party without the prior written consent of the other parties, and any
attempted assignment without such consent shall be void and of no effect.
6.4 Titles. The titles and captions of the Articles, Sections and
------
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution
-----------------------
Agreement is intended, nor shall it be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any customer,
affiliate, stockholder, partner, director, officer or employee of any party
hereto or any other person or entity, provided, however, that Sections 6.3 and
6.10 of this Contribution Agreement shall be enforceable by and shall inure to
the benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution Agreement,
------------
or the application thereof, is for any reason held to any extent to be invalid
or unenforceable, the remainder of this Contribution Agreement and application
of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Contribution
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision and to execute any amendment, consent or agreement
deemed necessary or desirable by the Operating Partnership to effect such
replacement.
6.7 Equitable Remedies. The parties hereto agree that irreparable
------------------
damage would occur in the event that any of the provisions of this Contribution
Agreement were not
18
<PAGE>
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Contribution Agreement and to enforce
specifically the terms and provisions hereof in any federal or state court
located in New York (as to which the parties agree to submit to jurisdiction for
the purposes of such action), this being in addition to any other remedy to
which they are entitled under this Contribution Agreement or otherwise at law or
in equity.
6.8 Attorneys' Fees. In connection with any litigation or a court
---------------
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover all costs incurred, including reasonable attorneys'
fees and legal assistants' fees and costs whether incurred prior to trial, at
trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given under
-------
this Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
LaSalle Hotel Operating Partnership, L.P.
c/o LaSalle Hotel Properties
220 East 42nd Street
New York, New York 10014
Attention: President
Phone:
Telecopy: 212-687-8170
with copies to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attention: Michael F. Taylor
Phone: 212-839-5300
Telecopy: 212-839-5599
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
19
<PAGE>
6.10 Waiver of Rights; Consents with Respect
---------------------------------------
to Partnership Interests.
- ------------------------
(a) Each Contributor acknowledges that the agreements contained herein
and the transactions contemplated hereby and any actions taken in contemplation
of the transactions contemplated hereby may conflict with, and may not have been
contemplated by, the partnership agreement of one or more partnerships in which
one or more of such Contributor's Interests represents a direct or indirect
interest or another agreement among one or more holders of such Interests or one
or more of the partners of any such partnership. With respect to each
partnership in which an Interest of a Contributor represents a direct or
indirect interest, each Contributor expressly gives all Consents (and any
consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "Conveyance Action" means, with respect to
-----------------
any partnership having a direct or indirect ownership interest in any Asset, (i)
the conveyance or agreement to convey by a partner thereof or by any holder of
an indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any such partner or holder of any action necessary or desirable to
facilitate any of the foregoing, including, without limitation, the following
(provided that the same are taken in furtherance of the foregoing): any sale or
distribution to, or merger with, any person of a direct or indirect interest in
such partnership, the entering into any agreement with any person that grants to
such person the right to purchase a direct or indirect interest in such
partnership, and the giving of the Consents and Waivers contained in this
Section 6.10 or consents or waivers similar thereto in form or purpose. As used
herein, the term "Consents" means, with respect to any such partnership, any
--------
consent necessary or desirable under the partnership agreement of such
partnership or any other agreement among all or any of the holders of interests
therein or any other agreement relating thereto or referred to therein (i) to
permit any and all Conveyance Actions relating to such partnership or to amend
such partnership agreement and/or other agreements so that no provision thereof
prohibits, restricts, impairs or interferes with any Conveyance Action (such
amendments to include, without limitation, the deletion of provisions which
cause a default under such agreement if interests therein are transferred for
cash), (ii) to admit the Operating Partnership as a substitute limited partner
or general partner of such partnership upon the Operating Partnership's
acquisition of a limited or general partnership interest therein, respectively,
and to adopt such amendment as is necessary or desirable to effect such
admission, (iii) to adopt any amendment as may be deemed desirable by the
Operating Partnership, either simultaneously with or immediately prior to the
acquisition of any interest therein, (iv) to continue such partnership following
the transfer of interest therein to the Operating Partnership and (v) to merge
such partnership with and into the Operating Partnership. As used herein, the
term "Waivers" means, with respect to a partnership of which an Interest of a
-------
20
<PAGE>
Contributor represents a direct or indirect interest, the waiving of any and all
rights that such Contributor may have with respect to, and (to the extent
possible) that any other person may have with respect to, or that may accrue to
such Contributor or other person upon the occurrence of, a Conveyance Action
relating to such partnership, including, but not limited to, the following
rights: rights of notice, rights to response periods, rights to purchase the
direct or indirect interests of another partner in such partnership or to sell
such Contributor's or other person's direct or indirect interest therein to
another partner, rights to sell such Contributor's or other person's direct or
indirect interest therein at a price other than as provided herein, or rights to
prohibit, limit, invalidate, otherwise restrict or impair any such Conveyance
Action or to cause a termination or dissolution of such partnership because of
such Conveyance Action. Each Contributor further covenants that such
Contributor will take no action to enjoin, or seek damages resulting from, any
Conveyance Action by any holder of a direct or indirect interest in a
partnership in which an Interest of such Contributor represents a direct or
indirect interest. The Waivers and Consents contained in this Section 6.10
shall terminate upon the termination of this Contribution Agreement, except as
to transactions completed hereunder prior to termination.
(b) Each Contributor by its execution hereof (i) with respect to each
Asset Entity in which an Interest owned by Contributor represents a direct or
indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree, but only to the extent necessary to maintain the REIT's status as a REIT
under the Code; and (ii) agrees that such Contributor's Consideration may be
reduced to reflect such direct transfer of assets and the consequent receipt of
Units directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent as is
necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner therein
and/or a substitute general partner therein if the Operating Partnership by the
exercise of its Contribution Right acquires a limited partnership interest or a
general partnership interest in such partnership, respectively, (ii) to redeem
the interest of any other partner therein who has not agreed to become a party
to this Contribution Agreement or a similar contribution agreement with the
Operating Partnership, (iii) to transfer to all partners thereof, including any
partner who has not agreed to become a party to this Contribution Agreement,
Units and/or cash (provided that such Contributor receives as a result of all
such distributions and the direct payment of consideration hereunder, an amount
of cash and/or Units that is in conformity with the Consideration of such
Contributor provided for herein), and thereafter, at
21
<PAGE>
the Operating Partnership's option, to dissolve, and (iv) any such other
amendment as the Operating Partnership may deem desirable and necessary to
effectuate the business intent of this Agreement, provided that such amendment
occurs simultaneously with or immediately prior to the acquisition of the
applicable partnership interest and, provided further, that such amendment will
not result in any increased liability on the part of any Contributor hereunder
or under the applicable partnership agreement.
6.11 Covenant to Proceed in Good Faith. The Operating Partnership
---------------------------------
will use its reasonable best efforts to effectuate the business intent of this
Agreement.
6.12 Confidentiality. All press releases or other public
---------------
communications of any kind relating to the IPO or the transactions contemplated
herein to the extent such press releases or communications directly or
indirectly refer to the Contributors, and the method and timing of release for
publication thereof, will be subject to the prior approval of the Operating
Partnership and a majority of the Contributors which such approval or non-
approval shall be provided within 24 hours of the date notice is received or
shall otherwise be deemed approved.
6.13 Computation of Time. Any time period provided for herein which
-------------------
shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of
the next full business day. Except as set forth in Article IV, all times are
Eastern Time.
6.14 Survival. It is the express intention and agreement of the
--------
parties hereto that the representations, warranties and covenants of each party
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.15 Time of the Essence. Time is of the essence with respect to all
-------------------
obligations of each party under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Contribution Agreement, or caused the Contribution Agreement to be duly
executed on its behalf, as of the date first written above.
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES
Its General Partner
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
23
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
CROSSTOWN ASSET CORP. I
By: /s/ Timothy Scott Clark
-------------------------------
Name: Timothy Scott Clark
Its: Senior Investment Manager
Address of Contributor:
c/o Cargill Financial Services Corporation
Attn: Timothy S. Clark
6000 Clearwater Drive
Minnetonka, MN 55343-9497
Telephone No: 612/984-3444
Facsimile No: 612/984-3905
24
<PAGE>
EXHIBIT A
---------
ASSET ENTITIES AND PROPERTIES
-----------------------------
Asset Entity Contributor Property
- ----------------------- ----------------------- ------------------------
LPR New Orleans Hotel Crosstown Asset Corp. I Le Meridien New Orleans
Limited Partnership
- -------------------------------------------------------------------------
LPR Dallas Hotel Crosstown Asset Corp. I Le Meridien Dallas
Limited Partnership
- -------------------------------------------------------------------------
Seaview Hotel Crosstown Asset Corp. I Marriott Seaview Resort
Investors, L.P.
- -------------------------------------------------------------------------
Key West Investors Crosstown Asset Corp. I Holiday Inn Beachside
Limited Partnership (Key West)
- -------------------------------------------------------------------------
Omaha Hotel Investors Crosstown Asset Corp. I Omaha Marriott Hotel
Limited Partnership
25
<PAGE>
EXHIBIT B
---------
Contributor Interest Consideration*
- ------------- -------- -------------------------------
The minimum consideration
shall
be a number of Units having a
value of not less than
$_______________.
* Each Unit will be valued for these purposes at the initial
public offering price of a share of Common Stock.
26
<PAGE>
EXHIBIT C
---------
PERMITTED ENCUMBRANCES
----------------------
27
<PAGE>
EXHIBIT D
---------
OPERATING PARTNERSHIP AGREEMENT
28
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
29
<PAGE>
EXHIBIT F
---------
ESCROW AGREEMENT
30
<PAGE>
EXHIBIT 10.9
[OLS Visalia]
CONTRIBUTION AGREEMENT
BY AND AMONG
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of January 29, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES............ 2
1.1 Acquisition of Interests........................ 2
1.2 Term of Agreement............................... 2
1.3 Consideration................................... 2
1.4 Closing; Condition to Obligations............... 2
1.5 Documents to be Delivered at Closing............ 4
1.6 Cessation of IPO................................ 5
1.7 Closing Costs................................... 5
1.8 Default......................................... 5
1.9 Further Assurances.............................. 5
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS........................ 6
2.1 Title to Interests.............................. 6
2.2 Authority....................................... 7
2.3 Litigation...................................... 8
2.4 No Other Agreements to Sell..................... 8
2.5 No Brokers...................................... 8
2.6 Investment Representations and Warranties....... 8
2.7 FIRPTA Representation........................... 10
2.8 Covenant to Remedy Breaches..................... 10
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP............................. 10
3.1 Authority....................................... 10
3.2 No Brokers...................................... 11
ARTICLE IV. CLOSING ADJUSTMENTS.................................. 11
4.1 Prorations...................................... 11
4.2 Accounts Receivable............................. 14
4.3 Security Deposits............................... 14
4.4 Timing of Calculations; Cooperation............. 15
4.5 Allocation of Adjustments....................... 15
ARTICLE V. POWER OF ATTORNEY.................................... 15
5.1 Grant of Power of Attorney...................... 15
5.2 Limitation on Liability......................... 16
5.3 Ratification; Third Party Reliance.............. 17
ARTICLE VI. MISCELLANEOUS........................................ 17
6.1 Amendment....................................... 17
i
<PAGE>
6.2 Entire Agreement; Counterparts; Applicable Law.................... 17
6.3 Assignability..................................................... 17
6.4 Titles............................................................ 17
6.5 Third Party Beneficiary........................................... 17
6.6 Severability...................................................... 17
6.7 Equitable Remedies................................................ 18
6.8 Attorneys' Fees................................................... 18
6.9 Notices........................................................... 18
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.. 19
6.11 Confidentiality................................................... 21
6.12 Computation of Time............................................... 21
6.13 Survival.......................................................... 21
6.14 Time of the Essence............................................... 21
EXHIBIT A: Excluded Interests
EXHIBIT B: Consideration
EXHIBIT C: Permitted Encumbrances
EXHIBIT D: Operating Partnership Agreement
EXHIBIT E: Registration Rights Agreement
EXHIBIT F: Escrow Agreement
ii
<PAGE>
CONTRIBUTION AGREEMENT
----------------------
This Contribution Agreement (the "Contribution Agreement") is executed as
----------------------
of the 29th day of January, 1998 by LaSalle Hotel Operating Partnership, L.P.
(the "Operating Partnership"), a Delaware limited partnership, and the
---------------------
Contributors whose names are set forth in Exhibit A hereto (each, a
---------
"Contributor" and, collectively, the "Contributors").
----------- ------------
WHEREAS, in connection with the consolidation of its hotel acquisition and
ownership business, LaSalle Partners intends to form a Maryland real estate
investment trust (the "REIT") that will be the sole general partner and a
----
limited partner of the Operating Partnership and to effect an initial public
offering (the "IPO") of the REIT's common shares of beneficial interest ("Common
--- ------
Shares");
- ------
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in the following ten hotel properties:
Radisson Hotel South and Plaza Tower, Bloomington, Minnesota; Le Meridien New
Orleans Hotel, New Orleans, Louisiana; Le Meridien Dallas Hotel, Dallas, Texas;
The Omaha Marriott Hotel, Omaha, Nebraska; the LaGuardia Marriott Hotel, New
York, New York; Marriott Seaview Resort, Galloway Township, New Jersey; The
Camberley Plaza Sabal Park, Tampa, Florida; Holiday Inn Plaza Park, Visalia,
California; Holiday Inn Beachside, Key West, Florida; and Le Montrose Suite
Hotel de Gran Luxe, West Hollywood, California;
WHEREAS, it is further understood that the Operating Partnership may
acquire, either before or after the IPO, interests in additional hotel
properties located within or outside the United States;
WHEREAS, each Contributor owns partnership interests in Visalia Plaza Park
Limited Partnership, an Illinois limited partnership (the "Asset Entity") which
------------
owns fee interests in the land and improvements known as Holiday Inn Plaza Park
(the "Property");
--------
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the aforementioned partnership
interests owned by such Contributor and (except for the Excluded Interests set
forth in Exhibit B) any other direct or indirect interests such Contributor may
---------
have, whether now owned or hereinafter acquired, in the Asset Entity or the
Property (the Property and all personal property related thereto or to the
operation thereof is hereinafter referred to as an "Asset" and each such direct
-----
or indirect interest (except for the Excluded Interests) of a Contributor in
such Asset Entity or in such Asset, is referred to individually as an "Interest"
--------
and collectively, as such Contributor's "Interests");
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
-----------------------------------------
<PAGE>
1.1 Acquisition of Interests. At the Final Closing (defined below), each
------------------------
Contributor shall, subject to Section 1.4 hereof, contribute, transfer, assign,
and convey to the Operating Partnership and the Operating Partnership shall (i)
acquire and accept from such Contributor, all right, title and interest of such
Contributor in such Contributor's Interests, free and clear of all Encumbrances
(as defined in Section 2.1 hereof) except Permitted Encumbrances (as defined in
Section 2.1 hereof), and (ii) deliver to such Contributor such Contributor's
Consideration (defined below), both in accordance with this Contribution
Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does not occur
-----------------
by December 31, 1998 (the "Termination Date"), this Contribution Agreement shall
----------------
be deemed terminated and shall be of no further force and effect and neither the
Operating Partnership nor the Contributors shall have any further obligations
hereunder.
1.3 Consideration. The full consideration for each Contributor's
-------------
Interests (such consideration with respect to such Contributor is hereinafter
referred to as such Contributor's "Consideration") shall be an amount payable in
-------------
cash and/or a number of Units (as hereinafter defined) as set forth in Exhibit
A, subject to the terms and provisions of Article IV hereof providing for
adjustments to each Contributor's Consideration based on closing adjustments; it
being understood that it is the intention of the parties to this Contribution
Agreement that any Minimum Working Capital (as defined in Section 4.1(c) hereof)
and any balances remaining in any furniture, fixtures and equipment reserve
accounts are to be transferred to the Operating Partnership as a part of the
Asset. As used herein, the term "Units" means units of limited partnership
-----
interest in the Operating Partnership.
1.4 Closing; Condition to Obligations. In connection with its acquisition
---------------------------------
of the Contributors' Interests, the Operating Partnership will notify the
Contributors of a closing date, which date will be no earlier than five (5)
business days after such notification and no later than December 15, 1998
(fifteen (15) business days prior to the Termination Date), for the initial
closing (the "Initial Closing") of the acquisition contemplated by this
---------------
Contribution Agreement. At or before such Initial Closing, which shall be held
at the offices of Brown & Wood llp, One World Trade Center, New York, New York
10048 or such other place as is determined by the Operating Partnership in its
sole discretion at a time specified by the Operating Partnership in its sole
discretion, the Operating Partnership and the Contributors will execute all
closing documents (the "Closing Documents") required by the Operating
-----------------
Partnership in accordance with Section 1.5 hereof and deposit the same in escrow
with Brown & Wood llp, New York, New York, pursuant to an escrow agreement in
substantially the form of Exhibit F hereto, as escrow agent of the Operating
Partnership (the "Closing Agent").
-------------
The transactions contemplated by this Contribution Agreement and by the
Closing Documents executed and deposited in connection with such exercise will
be consummated at the Final Closing (as hereinafter defined) only if (i) the
closing of the IPO (the "IPO Closing") is consummated by the earlier of (a)
-----------
fifteen (15) business days after the date of the Initial Closing and (b) the
Termination Date and (ii) the Total Company Enterprise Value (as
2
<PAGE>
defined in Exhibit A) is equal to or greater than $405,000,000. If the IPO
Closing occurs by such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing, cause to be delivered to the Closing Agent with
respect to each Contributor (i) the cash portion of such
Contributor's Consideration, if any (such cash portion, the
"Cash Portion"), and (ii) if applicable, a certificate of
------------
the General Partner of the Operating Partnership certifying
that such Contributor has been or will be, effective upon
the Final Closing (as hereinafter defined), admitted as a
limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will
indicate that such Contributor is the holder of the number
of Units which are called for pursuant to the Consideration
as adjusted pursuant to Article IV hereof;
(b) upon receipt of the Consideration set forth in clause (a)
above, the Closing Agent will release the Closing Documents
to the Operating Partnership and deliver to the Contributor
the Cash Portion, if any, and, if requested by the
Contributor, a copy of such General Partner's certificate;
and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "Final Closing").
-------------
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a breach of or other
exception with respect to Article 2 hereof or has otherwise materially breached
this Contribution Agreement (any such Contributor, a "Non-Complying
-------------
Contributor"), in which case the Operating Partnership shall, in lieu of the
delivery with respect to such Contributor pursuant to clause (a) above, notify
the Closing Agent of such election and direct the Closing Agent to return such
Contributor's Closing Documents and Ancillary Agreements (as defined below) to
such Contributor. The election of the Operating Partnership to not acquire all
or any portion of the Interests of a particular Non-Complying Contributor shall
not affect the obligations of any other Contributor hereunder, including any
other Non-Complying Contributor.
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be destroyed or damaged by fire or other casualty, then
this Contribution Agreement may, at the option of the Operating Partnership, be
terminated with respect to the Asset Entity, the Assets of which have been
destroyed or damaged. If, after the occurrence of any such casualty affecting
an Asset Entity's Assets, this Contribution Agreement is not so terminated
relative to such Asset
3
<PAGE>
Entity, the Operating Partnership may elect to (i) purchase the given
Contributors' Interests in such Asset Entity or Assets, as the case may be, and
(ii) direct such Contributors to pay or cause to be paid to the Operating
Partnership any sums collected under any policies of insurance because of damage
due to such casualty and otherwise assign to the Operating Partnership all
rights to collect such sums as may then be uncollected; provided, however, that
the Contributors shall not adjust or settle any insurance claim without the
Operating Partnership's prior written consent, not to be unreasonably withheld
or delayed. Under such circumstances, the Consideration payable upon such
purchase shall be reduced by the amount of any deductibles under the applicable
insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8, neither party shall have any
obligations under the Closing Documents or under any agreements or instruments
executed in connection with the transactions contemplated hereunder or
thereunder (such other agreements or instruments, collectively, "Ancillary
---------
Agreements"), this Contribution Agreement, the Closing Documents and the
- ----------
Ancillary Agreements shall be deemed null and void ab initio and the Closing
---------
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent in accordance with the previous paragraph.
1.5 Documents to be Delivered at Closing. At the Initial Closing, each
------------------------------------
Contributor shall, directly or through the attorney-in-fact appointed pursuant
to Article 4 hereof, execute, acknowledge where deemed desirable or necessary by
the Operating Partnership, and deliver to the Closing Agent, in addition to any
other documents mentioned elsewhere herein, the following:
(a) An Assignment of Interests (the "Assignment"), which assignment
----------
shall be in a form satisfactory to the Operating Partnership, shall contain a
warranty of title that such Contributor owns such Contributor's Interests free
and clear of all Encumbrances (as defined in Section 2.1 hereof), except, where
applicable, for the Permitted Encumbrances (as defined in Section 2.1 hereof)
and shall either (i) reaffirm the accuracy of all representations and warranties
and the satisfaction of all covenants made by such Contributor in Article II
hereof or (ii) if such reaffirmation cannot be made, identify those
representations, warranties and covenants of Article II hereof (other than
Section 2.5 hereof) with respect to which circumstances have changed, represent
that such Contributor has used all reasonable efforts within its control to
prevent and remedy such breach, and reaffirm the accuracy of all other
representations and warranties and the satisfaction of all other covenants made
by such Contributor in Article II hereof.
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests and effectuate the transactions contemplated
hereby, including, without limitation, deeds, assignments of ground leases and
space leases (as applicable), transfer tax and gains tax returns and any other
filings with any applicable governmental jurisdiction in which the
4
<PAGE>
Operating Partnership is required to file its partnership documentation or the
recording of the Assignment is required.
1.6 Cessation of IPO. If at any time the Operating Partnership or the
----------------
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO (the date of such determination being referred to as the
"Cessation Date"), the Operating Partnership will so advise each Contributor in
- ---------------
writing and thereupon all parties hereto will be relieved of all obligations
under this Contribution Agreement, all Ancillary Agreements, and all Closing
Documents (except for obligations arising under Sections 1.7, 2.5 and 3.2
hereof).
1.7 Closing Costs. The Operating Partnership agrees to pay all of the
-------------
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to this Agreement, including, without
limitation, any applicable transfer and sales taxes and any transfer fee due in
connection with the assumption of existing mortgage debt by the Operating
Partnership.
1.8 Default. (a) If, after notifying the Contributors of a date for the
-------
Initial Closing, the Operating Partnership fails to close (including a failure
due to the IPO Closing not occurring), then the Operating Partnership will pay
to each Contributor the sum of $100.00 as liquidated and agreed-upon damages.
It would be difficult, if not impossible, to ascertain the actual measure of
each Contributor's damages in the event of the Operating Partnership's default
and the parties agree that $100.00 is a fair reflection of each Contributor's
damages in the event of the Operating Partnership's default.
(b) If any Contributor defaults with respect to its obligations under
this Contribution Agreement, the Operating Partnership shall be entitled to
exercise against each such Contributor any and all remedies provided at law or
in equity, including but not limited to, the right to specific performance. No
default by any Contributor hereunder shall in any way limit or affect the
obligations of any other Contributor hereunder.
1.9 Further Assurances. Each Contributor will, from time to time, execute
------------------
and deliver to the Operating Partnership all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Operating Partnership may reasonably request in order to effect the
transactions contemplated by this Contribution Agreement, including instruments
or documents deemed necessary or desirable by the Operating Partnership to
effect and evidence the conveyance of such Contributor's Interests in accordance
with the terms of this Contribution Agreement. The provisions of this Section
1.9 shall survive the Final Closing.
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
-----------------------------
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set
5
<PAGE>
forth in this Article II, which representations and warranties (unless otherwise
noted) are true as of the date hereof. As a condition to the Operating
Partnership's obligation to complete the acquisition of any Contributor's
Interests after the exercise of the Contribution Right, such representations and
warranties must continue to be true as of the date of the Initial Closing and as
of the date of the Final Closing.
2.1 Title to Interests. Each Contributor owns its Interests beneficially
------------------
and of record, free and clear of any claim, lien, pledge, voting agreement,
option, charge, security interest, mortgage, deed of trust, encumbrance, rights
of assignment, purchase rights or other rights of any nature whatsoever
(collectively, "Encumbrances"). Title to the Property is free and clear of any
------------
Encumbrance, except as disclosed as exceptions in the title report for real
property owned or leased by the Asset Entity, dated on or after the date the
Property was acquired by the Asset Entity, provided such title exceptions are
satisfactory to the Operating Partnership in its sole discretion, and as set
forth on Exhibit C attached hereto (any such encumbrance, a "Permitted
--------- ---------
Encumbrance"), and has full power and authority to convey free and clear of any
- -----------
Encumbrances (except, where applicable, the Permitted Encumbrances), its
Interests and, upon delivery of any Assignment by such Contributor conveying its
Interests and delivery of Consideration for such Interests as herein provided,
the Operating Partnership will acquire good and valid title thereto, free and
clear of any Encumbrance except Encumbrances created in favor of the Operating
Partnership by the transactions contemplated hereby and, where applicable, the
Permitted Encumbrances. No Contributor will consent to join in or in any way
effect the transfer of any Asset prior to the Final Closing. At the Final
Closing, if so requested, Contributors will execute all documents necessary to
enable a title insurance company (acceptable to the Operating Partnership, in
its sole discretion) to issue to the Operating Partnership an ALTA Form B (1987
or later) Owner's Policy and such endorsements as the Operating Partnership may
reasonably request, insuring fee simple and/or leasehold title to all real
property and improvements comprising all or any part of the Assets to the
Operating Partnership; provided that each Contributor's cost of complying with
this requirement shall be limited to ten percent of the Consideration to be
received by such Contributor, which amount shall be deducted from such
Consideration at the Final Closing. Each of such Contributor's Interests have
been validly issued and Contributor has funded (or will fund before the same is
past due) all capital contributions and advances to the Asset Entity in which
such Interest represents an interest that are required to be funded or advanced
prior to the date hereof and the date of the Initial Closing and the Final
Closing. There are no agreements, instruments or understandings with respect to
any of such Contributor's Interests except as set forth in the partnership
agreement of the Asset Entity in which an Interest represents a limited partner
or general partner interest or as disclosed in writing to the Operating
Partnership. Such Contributor has no interest, either direct or indirect, in
any of the Assets except for (a) the Interests owned by it which are the subject
of this Contribution Agreement, (b) the Excluded Interests, where applicable,
and (c) direct or indirect interests in partnerships or other entities which are
themselves Contributors hereunder. Such Contributor covenants that no
Encumbrance on his Interests (except, where applicable, the Permitted
Encumbrances) will be in existence as of the date of the Final Closing. In
making the representations in this Section 2.1 regarding the absence of
Encumbrances, each Contributor may assume that the consents and waivers of
rights set forth in Section 6.10 hereof have been given by all partners of
partnerships in which such Contributor's Interest represent direct or
6
<PAGE>
indirect interests. Notwithstanding anything to the contrary contained herein,
to the extent that the Contributor's Interests transferred hereunder constitute
interests in partnerships or other entities ("Continuing Partnerships") which
-----------------------
will continue in existence after the consummation of the transactions
contemplated hereby, such Interests are and will remain subject to the terms and
provisions of the partnership or other organizational agreements (as amended) of
the Continuing Partnerships, including without limitation, restrictions,
options, priorities and partnership loans provided for therein.
2.2 Authority. Such Contributor has full right, authority, power and
---------
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to transfer, convey,
assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms.
Except for any breaches, violations or defaults which will be waived or cured
prior to the Initial Closing and all loans, indentures, creditor agreements or
other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing, the execution, delivery and performance
of this Contribution Agreement and each such agreement, document and instrument
by or on behalf of such Contributor: (a) does not and will not violate such
Contributor's partnership agreement, operating agreement, declaration of trust,
charter or bylaws, if applicable, or other organizational documentation; (b)
does not and will not violate any foreign, federal, state, local or other laws
applicable to or binding on such Contributor or require such Contributor to
obtain any approval, consent or waiver of, or make any filing with, any person
or authority (governmental or otherwise) that has not been obtained or made or
which does not remain in effect; and (c) does not and will not result in a
breach of, constitute a default under, accelerate any obligation under or give
rise to a right of termination of, any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which such Contributor is a party or by which the property
of such Contributor is bound or affected, or result in the creation of any
Encumbrance on any of the property or assets of any partnership in which an
Interest of such Contributor represents an interest. In making the
representations set forth in this Section 2.2, each Contributor may assume that
the consents and waivers of rights set forth in Section 6.10 hereof have been
given by all partners of partnerships or owners of voting interests in entities
in which such Contributor's Interests represent direct or indirect interests.
2.3 Litigation. There is no litigation or proceeding, either judicial or
----------
administrative, pending or overtly threatened, affecting all or any portion of
such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such
7
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Contributor's ability to enter into and perform all of its obligations under
this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor represents that it has
---------------------------
not made any agreement with, and will not enter into any agreement with, and has
no obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Interests or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Interests. In making the representations set forth in this
Section 2.4, the Contributor may assume that the consents and waivers of rights
set forth in Section 6.10 hereof have been given by all partners of the Asset
Entities.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
----------
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless the Operating Partnership for all costs and expenses incurred
by the Operating Partnership as a result of a breach of this representation.
The provisions of this Section 2.5 shall survive termination of this
Contribution Agreement.
2.6 Investment Representations and Warranties. Each Contributor who is
-----------------------------------------
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of the
agreement of limited partnership of the Operating Partnership (in substantially
the form attached hereto as Exhibit D) (the "Partnership Agreement"), including
---------------------
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended from time in accordance with its terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such investment. If such
Contributor retained a person to represent or advise it with respect to the
investment in Units that may be made hereby then, at Contributor's request, such
Contributor shall, prior to or at the Initial Closing, (i) acknowledge in
writing such representation and (ii) cause such representative or advisor to
deliver a certificate to the Operating Partnership containing such
representations as are reasonably requested by the Operating Partnership.
8
<PAGE>
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership and/or Contributor's
position (in the case of certain individual Contributors) as a director or
executive officer of the REIT.
(d) The Units to be issued to such Contributor will be acquired by
such Contributor for its own account (or if such Contributor is a trustee, for a
trust account) for investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Contributor's right
(subject to the terms of the Units) at all times to distribute the Units to
affiliates of such Contributor or to sell or otherwise dispose of all or any
part of its Units under an exemption from such registration available under the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
--------------
securities laws, and subject, nevertheless, to the disposition of its assets
being at all times within its control. Such Contributor was not formed for the
specific purpose of acquiring an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to
such Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws. Such Contributor hereby acknowledges that because of
the restrictions on transfer or assignment of such Units to be issued hereunder
which will be set forth in the Partnership Agreement and/or in a Registration
Rights Agreement (as defined in Section 5.1 hereof), such Contributor may have
to bear the economic risk of the investment commitment evidenced by this
Contribution Agreement and any Units acquired hereby for an indefinite period of
time, although (i) under the terms of the Partnership Agreement, as it will be
in effect at the time of the IPO, Units
9
<PAGE>
will be redeemable at the request of the holder thereof at any time after the
first anniversary of their issuance for cash or (at the option of the REIT) for
Common Shares of the REIT and (ii) the holder of any such Common Shares issued
upon a presentation of Units for redemption will be afforded certain rights to
have such Common Shares registered for resale under the Securities Act or
applicable state securities laws under the Registration Rights Agreement as
described more fully below.
(f) Contributor is an "accredited investor" as defined in Rule 501 of
Regulation D under the Securities Act.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within
--------------------- --------------
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 Covenant to Remedy Breaches. Each Contributor covenants to use all
---------------------------
reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of such Contributor hereunder, (b) to satisfy all
covenants of such Contributor hereunder and (c) to promptly cure any breach of a
representation, warranty or covenant of such Contributor hereunder upon its
learning of same.
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
-------------------------------------------------
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
---------
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by the Operating Partnership: (a) does not
and will not violate the Partnership Agreement; (b) does not and will not
violate any foreign, federal, state and local or other laws applicable to
Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
10
<PAGE>
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Operating Partnership is a party
or by which the property of the Operating Partnership is bound or affected.
3.2 No Brokers. The Operating Partnership represents that it has not
----------
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
any Contributor to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
ARTICLE IV. CLOSING ADJUSTMENTS
-------------------
4.1 Prorations. The Consideration for the Asset shall be subject to
----------
prorations and credits as follows to be determined as of 12:01 A.M. local time
at the location of the Property on the date of the Final Closing (the
"Adjustment Time"), it being understood that the date of the Final Closing shall
be the first day of income and expense to the Operating Partnership:
(a) Hotel Revenues. Except as set forth below, the Asset Entity
--------------
shall be entitled to all hotel room, food service, bar, beverage and liquor
revenues and charges and all revenues and charges from hotel room
operations, restaurant operations, hotel banquet and conference facility
operations, and other revenue of any kind attributable to the same for the
period prior to the Adjustment Time. The Operating Partnership shall be
entitled to all hotel room, food service, bar, beverage and liquor revenues
and charges and all revenues and charges from restaurant operations, hotel
banquet and conference facility operations, and all other revenue of any
kind attributable to any of the same for the period on and after the
Adjustment Time. Notwithstanding the foregoing, the Operating Partnership
shall be entitled to one-half (1/2) of the revenue from hotel rooms at the
Asset for the night preceding the date of the Final Closing. The Operating
Partnership shall not give the Asset Entity a credit at the date of the
Final Closing for any accounts receivable in connection with the Asset as
of the date of the Final Closing; but the Operating Partnership shall use
reasonable efforts to collect such accounts receivable and shall remit them
to the Asset Entity upon collection, less all reasonable costs of
collection; provided, however, any collection of account receivables shall
first be applied to those accruing after the date of the Final Closing.
The Asset Entity shall provide the Operating Partnership a credit against
the Consideration for the Asset in an amount equal to all guest reservation
deposits held by the hotel for hotel guests arriving or staying after check
out time for the Asset on the date of the Final Closing.
(b) Rents payable under Tenant Leases. Prepaid rent,
---------------------------------
nondelinquent rents, and tax reimbursements under any space leases
affecting the Asset (collectively, "Rents") collected subsequent to the
-----
date of the Final Closing and properly allocable to
11
<PAGE>
periods prior to the date of the Final Closing, net of the Operating
Partnership's costs of collection, if any, shall be paid, promptly after
receipt, to the Asset Entity, but subject to all of the provisions of this
Section hereof; and any portion thereof properly allocable to periods
subsequent to the date of the Final Closing, if any, shall be paid to the
Operating Partnership. Any amount collected from a tenant shall first be
applied to such tenant's current monthly rental and then to past due
amounts in the reverse order in which they were due. Any advance rental
payments or deposits paid by tenants prior to the date of the Final Closing
and applicable to the period of time subsequent to the date of the Final
Closing and any security deposits or other amounts paid by tenants,
together with any interest on both thereof to the extent such interest is
due to tenants, shall be credited to the Operating Partnership on the date
of the Final Closing. No credit shall be given the Asset Entity for
accrued and unpaid Rent or any other non-current sums due from tenants
until said sums are paid.
(c) Minimum Working Capital; Cash and Cash Reserves. The Asset
-----------------------------------------------
shall, as of the Closing Time, have working capital equal to $100,000
("Minimum Working Capital"). To the extent all petty cash funds at the
Asset and all cash in any operating accounts for the Asset exceed the
amount required to fund Minimum Working Capital, the Operating Partnership
shall give the Asset Entity a credit on the date of the Final Closing. To
the extent such cash is insufficient to fund Minimum Working Capital, the
deficiency shall be deducted from the consideration payable to Contributor
in accordance with Exhibit A. Any balances remaining in any furniture,
fixtures and equipment reserve accounts shall be transferred to the
Operating Partnership as a part of the Asset. The Operating Partnership
and the Asset Entity shall make mutually satisfactory arrangements for
counting such cash and determining the balances in the operating accounts
as of the Adjustment Time.
(d) Trade Payables. Trade payables shall mean (for all purposes)
--------------
under this Contribution Agreement, open accounts payable to trade vendors
or suppliers of the Asset's hotel, restaurant, bar or similar facilities.
The Asset Entity agrees to give the Operating Partnership a credit on the
date of the Final Closing for all trade payables from the Asset which have
accrued on or prior to the Adjustment Time, and the Operating Partnership
shall be obligated to pay such payables to the extent it has received a
credit from the Asset Entity on the date of the Final Closing. The
Operating Partnership agrees to pay all trade payables from the Asset which
have accrued after the Adjustment Time and shall and hereby does indemnify
and hold the Asset Entity harmless from payment of the same. The
indemnities contained or provided for in this section survive the date of
the Final Closing.
(e) Banquet and Event Deposits. The Operating Partnership shall
--------------------------
receive and be entitled to a credit against the Consideration for all
prepaid deposits for banquets and other functions that are scheduled to
take place at the Asset on or after the date of the Final Closing.
(f) Service Contracts and Equipment Leases. Any amounts prepaid
--------------------------------------
or payable under any Service Contracts or Equipment Leases which the
Operating
12
<PAGE>
Partnership has elected to assume shall be prorated at the date of the
Final Closing as of the date of the Final Closing with the Asset Entity
obligated for all sums accrued prior to the Adjustment Time and the
Operating Partnership obligated for all sums accrued after the Adjustment
Time.
(g) Sales Tax. The Operating Partnership shall receive a credit
---------
for any and all sales, occupancy, use or other taxes due in connection with
the operation of the Asset which have accrued prior to the date of the
Final Closing and shall indemnify the Operating Partnership for all such
taxes to the extent the Operating Partnership has not received such credit.
The Operating Partnership shall be responsible to pay all such taxes to the
extent it has received a credit and shall indemnify the Asset Entity for
such taxes. The indemnifications set forth herein shall survive the date
of the Final Closing.
(h) Taxes. The Operating Partnership shall receive a credit for
-----
any accrued but unpaid real estate taxes imposed in respect of the Asset
for the portion of the current year which has elapsed prior to the date of
the Final Closing (and to the extent unpaid, for prior years). If the
amount of any such taxes have not been determined as of the date of the
Final Closing, such credit shall be based on the most recent ascertainable
taxes and shall be reprorated upon issuance of the final tax bill. The
Asset Entity shall also give the Operating Partnership a credit for any
special assessments which are levied or charged against the Asset prior to
date of the Final Closing, whether or not then due and payable.
(i) Utilities. Utilities and fuel, including, without
---------
limitation, steam, water, electricity, gas and oil, shall be prorated as of
the date of the Final Closing. The Asset Entity shall cause the meters, if
any, for utilities to be read the day on which the Final Closing occurs and
to pay the bills rendered on the basis of such readings. If any such meter
reading for any utility is not available, then adjustment therefor shall be
made on the basis of the most recently issued bills therefor which are
based on meter readings no earlier than thirty (30) days prior to the date
of the Final Closing; and such adjustment shall be reprorated when the next
utility bills are received.
(j) Employee Expenses. Wages, benefit payments, vacation pay (or
-----------------
the value of any time accrued with respect thereto), and any other
compensation or benefits payable to all persons currently employed for work
in or in connection with the Asset and its operation (collectively,
"Employees") shall be prorated as of the date of the Final Closing; the
Operating Partnership shall not be required to assume any obligation with
respect to any employee benefits that were incurred prior to the date of
the Final Closing and for which the Operating Partnership did not receive a
credit therefor; the Asset Entity shall indemnify the Operating Partnership
against any claim in connection therewith. The indemnity provided herein
shall survive the date of the Final Closing.
13
<PAGE>
(k) Ground Lease Rents. Prepaid rent, nondelinquent rents,
------------------
delinquent rents, tax reimbursements, and other fees and costs under any
ground, or other leases, or parking agreements to which the Asset is
subject (collectively, "Ground Rents") shall be adjusted and prorated as of
------------
the date of the Final Closing.
(l) Other Expenses. Other prepaid expenses to which the Asset is
--------------
reasonably subject shall be adjusted and prorated as of the date of the Final
Closing.
(m) Gift Certificates. The Operating Partnership shall receive a
-----------------
credit for all gift certificates issued by the Asset and paid for by or on
behalf of the recipient. The Operating Partnership agrees to honor all non-
expired gift certificates issued by the Asset to the extent such non-expired
gift certificates are itemized at the Final Closing.
At least five (5) days prior to the date of the Final Closing, the Asset
Entity shall deliver to the Operating Partnership copies of all information and
records necessary to support the prorations hereunder. In the event any
prorations made pursuant hereto shall prove incorrect for any reason whatsoever,
either party shall be entitled to an adjustment to correct the same.
4.2 Accounts Receivable. The Asset Entity shall retain all accounts
-------------------
receivable and other income items which are attributable to periods prior to the
date of the Final Closing. The Asset Entity shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the Asset Entity. Except for sums actually received by the Operating
Partnership pursuant to the immediately preceding sentence, the Operating
Partnership shall assume no obligation to collect or enforce the payment of any
amounts that may be due to the Asset Entity, except that the Operating
Partnership shall render reasonable assistance, at no expense to the Operating
Partnership, to the Asset Entity after the Final Closing in the event the Asset
Entity proceeds against any third-party to collect any accounts receivable or
other income items due the Asset Entity.
4.3 Security Deposits. An amount equal to all tenant security deposits
-----------------
and all other deposits for advance reservations, banquets or future services or
made in connection with the space leases or the guest bookings and interest
thereon, if any, and any other amounts due with respect to such deposits shall
be paid over to the Operating Partnership at the Final Closing.
4.4 Timing of Calculations; Cooperation. Each Asset Entity and/or
-----------------------------------
Transferor Entity and the Operating Partnership agree to use reasonable efforts
to reconcile, prorate, and adjust all of the foregoing items upon the Final
Closing and, in all events, such reconciliation, proration and adjustment shall
be completed within ninety (90) days after the date of the Final Closing. In
the event any adjustments or prorations made pursuant to this Contribution
14
<PAGE>
Agreement are, subsequent to Final Closing, found to be erroneous, then either
party hereto who is entitled to additional amounts shall invoice the other party
for such additional amounts as may be owing, and such amounts shall be paid
promptly by the other party upon receipt of invoice. Such invoice shall be
accompanied by reasonable substantiating evidence.
4.5 Allocation of Adjustments. All adjustments contemplated by this
-------------------------
Article IV shall, to the extent practicable, be made by adjusting (either up or
down) the cash portion amount of the Consideration and/or the number of Units
issued to each Contributor by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to
the Asset Entity in which the Contributor owns an interest. The amount of an
Asset Entity's adjustments calculated pursuant to this Article IV allocated to
each Contributor shall be that portion equal to that Contributor's pro rata
equity interest in each Asset Entity.
ARTICLE V. POWER OF ATTORNEY
-----------------
5.1 Grant of Power of Attorney. Each Contributor does hereby irrevocably
--------------------------
appoint Jonathan E. Bortz, Michael Barnello, and the Operating Partnership, and
each of them individually and any successor thereof from time to time (such
persons or the Operating Partnership or any such successor of any of them acting
in his, her or its capacity as attorney-in-fact pursuant hereto, the "Attorney-
--------
in-Fact") as the true and lawful attorney-in-fact and agent of such Contributor,
- -------
to act in the name, place and stead of such Contributor:
(a) To enter into a registration rights agreement a form of which is
attached hereto as Exhibit E (the "Registration Rights Agreement").
-----------------------------
(b) To enter into a lock-up agreement (the "Lock-up Agreement") which
-----------------
provides that the Contributors will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of (or announce any offer, sale, offer of sale, contract
of sale, grant of any option to purchase or other sale or disposition of)
any REIT Common Shares or any securities convertible into or exchangeable
for or substantially similar to REIT Common Shares, for a period of one
year from the IPO Closing without the prior written consent of the managing
underwriter named in the Lock-up Agreement.
(c) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the
execution of Closing Documents, Ancillary Agreements, the Partnership
Agreement, any other documents relating to the acquisition by the Operating
Partnership of such Contributor's Interests, and any consents contemplated
by Section 6.10 hereof) and, in general, to do all things and to take all
action which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transaction
contemplated by this Contribution Agreement, the Ancillary Agreements, if
any, and the Closing Documents as fully as could such Contributor if
personally present and acting.
15
<PAGE>
The Power of Attorney granted by each Contributor pursuant to this Article
V and all authority conferred hereby is granted and conferred subject to and in
consideration of the interests of the Operating Partnership, the REIT and the
other Contributors and is for the purpose of completing the transactions
contemplated by this Contribution Agreement. The Power of Attorney shall
terminate upon termination of this Contribution Agreement. The Power of
Attorney of each Contributor granted hereby and all authority conferred hereby
is coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of such Contributor or by operation of law, whether by the
death, disability, incapacity or liquidation of such Contributor or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which such Contributor is acting as a
fiduciary or fiduciaries), and if, after the execution hereof, such Contributor
shall die or become disabled or incapacitated or is liquidated, or if any other
such event or events shall occur before the completion of the transactions
contemplated by this Contribution Agreement, the Attorney-in-Fact shall
nevertheless be authorized and directed to complete all such transactions as if
such death, disability, incapacity, liquidation or other event or events had not
occurred and regardless of notice thereof. Each Contributor acknowledges that
Jonathan E. Bortz, Michael Barnello and the Operating Partnership have, and any
successor thereof acting as Attorney-in-Fact may have an economic interest in
the transactions contemplated by this Contribution Agreement. Each Contributor
agrees that, at the request of the Operating Partnership, it will promptly
execute a separate power of attorney on the same terms set forth in this Article
V, such execution to be witnessed and notarized.
5.2 Limitation on Liability. It is understood that the Attorney-in-Fact
-----------------------
assumes no responsibility or liability to any person by virtue of the Power of
Attorney granted by each Contributor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
formation of the REIT, the acquisitions of the Interests by the Operating
Partnership, the Registration Statement, the Prospectus or any Preliminary
Prospectus, nor for any aspect of the offering of the REIT's Common Shares, and
it shall not be liable for any error of judgment or for any act done or omitted
or for any mistake of fact or law except for its own gross negligence or bad
faith. Each Contributor agrees that the Attorney-in-Fact may consult with
counsel of its own choice (who may be counsel for the Operating Partnership or
the REIT) and it shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith and in accordance
with the opinion of such counsel. It is understood that the Attorney-in-Fact
may, without breaching any express or implied obligation to the Contributor
hereunder, release, amend or modify any other Power of Attorney granted by any
other Contributor hereunder or by any other person under any related agreement.
The provisions of this Section 5.2 shall not limit or otherwise affect the
obligations of the Operating Partnership (acting for itself and not as Attorney-
in-Fact) under the other Articles of this Contribution Agreement.
5.3 Ratification; Third Party Reliance. Each Contributor does hereby
----------------------------------
ratify and confirm all that the Attorney-in-Fact shall lawfully do or cause to
be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.
16
<PAGE>
ARTICLE VI. MISCELLANEOUS
-------------
6.1 Amendment. Any amendment hereto shall be effective only against those
---------
parties hereto who have acknowledged in writing their consent to such amendment.
No waiver of any provisions of this Contribution Agreement shall be valid unless
in writing and signed by the party against whom enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This Contribution
----------------------------------------------
Agreement and all Ancillary Agreements, including the Lease Agreement to be
entered into between the Operating Partnership and OLS Visalia, LLC, (a)
constitute the entire agreement and supersede conflicting provisions set forth
in all other prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, (b) may be executed in
several counterparts, each of which will be deemed an original and all of which
shall constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of New York without giving effect to the conflict of law provisions
thereof.
6.3 Assignability. This Contribution Agreement shall be binding upon, and
-------------
shall be enforceable by and inure to the benefit of, the parties hereto and
their respective heirs, legal representatives, successors and assigns; provided,
however, that this Contribution Agreement may not be assigned (except by
operation of law) by any party without the prior written consent of the other
parties, and any attempted assignment without such consent shall be void and of
no effect.
6.4 Titles. The titles and captions of the Articles, Sections and
------
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution Agreement
-----------------------
is intended, nor shall it be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any customer, affiliate,
stockholder, partner, director, officer or employee of any party hereto or any
other person or entity, provided, however, that Sections 5.2, 5.3, 6.3 and 6.10
of this Contribution Agreement shall be enforceable by and shall inure to the
benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution Agreement, or the
------------
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Contribution Agreement and application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Contribution
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision and to execute any amendment, consent or agreement
deemed necessary or desirable by the Operating Partnership to effect such
replacement.
17
<PAGE>
6.7 Equitable Remedies. The parties hereto agree that irreparable damage
------------------
would occur in the event that any of the provisions of this Contribution
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Contribution
Agreement and to enforce specifically the terms and provisions hereof in any
federal or state court located in New York (as to which the parties agree to
submit to jurisdiction for the purposes of such action), this being in addition
to any other remedy to which they are entitled under this Contribution Agreement
or otherwise at law or in equity.
6.8 Attorneys' Fees. In connection with any litigation or a court
---------------
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover all costs incurred, including reasonable attorneys'
fees and legal assistants' fees and costs whether incurred prior to trial, at
trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given under this
-------
Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
LaSalle Hotel Operating Partnership, L.P.
220 East 42nd Street
New York, New York 10017
Attention: Michael Barnello
Phone: 212-661-6161
Telecopy: 212-687-8170
with copies to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attention: Michael F. Taylor
Phone: 212-839-5300
Telecopy: 212-839-5599
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
18
<PAGE>
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.
----------------------------------------------------------------
(a) Each Contributor acknowledges that the agreements contained herein
and the transactions contemplated hereby and any actions taken in contemplation
of the transactions contemplated hereby may conflict with, and may not have been
contemplated by, the partnership agreement of one or more partnerships in which
one or more of such Contributor's Interests represents a direct or indirect
interest or another agreement among one or more holders of such Interests or one
or more of the partners of any such partnership. With respect to each
partnership in which an Interest of a Contributor represents a direct or
indirect interest, each Contributor expressly gives all Consents (and any
consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "Conveyance Action" means, with respect to any
-----------------
partnership having a direct or indirect ownership interest in any Asset, (i) the
conveyance or agreement to convey by a partner thereof or by any holder of an
indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any such partner or holder of any action necessary or desirable to
facilitate any of the foregoing, including, without limitation, the following
(provided that the same are taken in furtherance of the foregoing): any sale or
distribution to, or merger with, any person of a direct or indirect interest in
such partnership, the entering into any agreement with any person that grants to
such person the right to purchase a direct or indirect interest in such
partnership, and the giving of the Consents and Waivers contained in this
Section 6.10 or consents or waivers similar thereto in form or purpose. As used
herein, the term "Consents" means, with respect to any such partnership, any
--------
consent necessary or desirable under the partnership agreement of such
partnership or any other agreement among all or any of the holders of interests
therein or any other agreement relating thereto or referred to therein (i) to
permit any and all Conveyance Actions relating to such partnership or to amend
such partnership agreement and/or other agreements so that no provision thereof
prohibits, restricts, impairs or interferes with any Conveyance Action (such
amendments to include, without limitation, the deletion of provisions which
cause a default under such agreement if interests therein are transferred for
cash), (ii) to admit the Operating Partnership as a substitute limited partner
or general partner of such partnership upon the Operating Partnership's
acquisition of a limited or general partnership interest therein, respectively,
and to adopt such amendment as is necessary or desirable to effect such
admission, (iii) to adopt any amendment as may be deemed desirable by the
Operating Partnership, either simultaneously with or immediately prior to the
acquisition of any interest therein, (iv) to continue such partnership following
the transfer of interest therein to the Operating Partnership, and (v) to merge
such partnership with and into the Operating Partnership. As used herein, the
term "Waivers" means, with respect to a partnership of which an Interest of a
-------
Contributor represents a direct or indirect interest, the waiving of any and all
rights that such Contributor may have with respect to, and (to the extent
possible) that any other person may
19
<PAGE>
have with respect to, or that may accrue to such Contributor or other person
upon the occurrence of, a Conveyance Action relating to such partnership,
including, but not limited to, the following rights: rights of notice, rights to
response periods, rights to purchase the direct or indirect interests of another
partner in such partnership or to sell such Contributor's or other person's
direct or indirect interest therein to another partner, rights to sell such
Contributor's or other person's direct or indirect interest therein at a price
other than as provided herein, or rights to prohibit, limit, invalidate,
otherwise restrict or impair any such Conveyance Action or to cause a
termination or dissolution of such partnership because of such Conveyance
Action. Each Contributor further covenants that such Contributor will take no
action to enjoin, or seek damages resulting from, any Conveyance Action by any
holder of a direct or indirect interest in a partnership in which an Interest of
such Contributor represents a direct or indirect interest. The Waivers and
Consents contained in this Section 6.10 shall terminate upon the termination of
this Contribution Agreement, except as to transactions completed hereunder prior
to termination.
(b) Each Contributor by its execution hereof (i) with respect to each
Asset Entity in which an Interest owned by Contributor represents a direct or
indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree; and (ii) agrees that such Contributor's Consideration may be reduced to
reflect such direct transfer of assets and the consequent receipt of Units
directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent as is
necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner therein
and/or a substitute general partner therein if the Operating Partnership by the
exercise of its Contribution Right acquires a limited partnership interest or a
general partnership interest in such partnership, respectively, (ii) to redeem
the interest of any other partner therein who has not agreed to become a party
to this Contribution Agreement or a similar contribution agreement with the
Operating Partnership, (iii) to transfer to all partners thereof, including any
partner who has not agreed to become a party to this Contribution Agreement,
Units and/or cash (provided that such Contributor receives as a result of all
such distributions and the direct payment of consideration hereunder, an amount
of cash and/or Units that is in conformity with the Consideration of such
Contributor provided for herein), and thereafter, at the Operating Partnership's
option, to dissolve, and (iv) any such other amendment as the Operating
Partnership may deem desirable, provided that such amendment occurs
simultaneously with or immediately prior to the acquisition of the applicable
partnership interest and, provided further, that such amendment will not result
in any increased liability on the part of any Contributor hereunder or under the
applicable partnership agreement. The
20
<PAGE>
Attorney-in-Fact may on behalf of each Contributor execute such consents,
amendments or other instruments as it deems necessary or desirable in connection
with the foregoing.
6.11 Confidentiality. All press releases or other public communications of
---------------
any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
6.12 Computation of Time. Any time period provided for herein which shall
-------------------
end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next
full business day. All times are Eastern Time.
6.13 Survival. It is the express intention and agreement of the parties
--------
hereto that the representations, warranties and covenants of each Contributor
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.14 Time of the Essence. Time is of the essence with respect to all
-------------------
obligations of Contributor under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Contribution Agreement, or caused the Contribution Agreement to be duly
executed on its behalf, as of the date first written above.
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES
Its General Partner
By:_______________________________
Name:
Title:
22
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 29, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
Outrigger Lodging Services
By: Alan Baer
---------------------------
Name: Alan Baer
Title: Senior Vice President
Address of Contributor:
16000 Ventura Boulevard
Encino, CA 91436
Telephone/Facsimile Numbers:
Phone: 818-905-8280
Fax: 818-905-7786
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
23
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Contributor Interest Consideration
- ---------------------------- --------------------- -------------------------------
<S> <C> <C>
Outrigger Lodging Services 44.82% limited See attached valuation formula.
partnership interest
in the Asset Entity
</TABLE>
<PAGE>
EXHIBIT B
---------
EXCLUDED INTERESTS
<PAGE>
EXHIBIT C
---------
PERMITTED ENCUMBRANCES
<PAGE>
EXHIBIT D
---------
OPERATING PARTNERSHIP AGREEMENT
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT F
---------
ESCROW AGREEMENT
<PAGE>
EXHIBIT 10.10
[OLS Le Montrose]
CONTRIBUTION AGREEMENT
BY AND AMONG
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of January 29, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES............ 2
1.1 Acquisition of Interests........................ 2
1.2 Term of Agreement............................... 2
1.3 Consideration................................... 2
1.4 Closing; Condition to Obligations............... 2
1.5 Documents to be Delivered at Closing............ 4
1.6 Cessation of IPO................................ 5
1.7 Closing Costs................................... 5
1.8 Default......................................... 5
1.9 Further Assurances.............................. 5
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS........................ 6
2.1 Title to Interests.............................. 6
2.2 Authority....................................... 7
2.3 Litigation...................................... 8
2.4 No Other Agreements to Sell..................... 8
2.5 No Brokers...................................... 8
2.6 Investment Representations and Warranties....... 8
2.7 FIRPTA Representation........................... 10
2.8 Covenant to Remedy Breaches..................... 10
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP............................. 10
3.1 Authority....................................... 10
3.2 No Brokers...................................... 11
ARTICLE IV. CLOSING ADJUSTMENTS.................................. 11
4.1 Prorations...................................... 11
4.2 Accounts Receivable............................. 14
4.3 Security Deposits............................... 14
4.4 Timing of Calculations; Cooperation............. 15
4.5 Allocation of Adjustments....................... 15
ARTICLE V. POWER OF ATTORNEY.................................... 15
5.1 Grant of Power of Attorney...................... 15
5.2 Limitation on Liability......................... 16
5.3 Ratification; Third Party Reliance.............. 17
ARTICLE VI. MISCELLANEOUS........................................ 17
6.1 Amendment....................................... 17
i
<PAGE>
6.2 Entire Agreement; Counterparts; Applicable Law.................... 17
6.3 Assignability..................................................... 17
6.4 Titles............................................................ 17
6.5 Third Party Beneficiary........................................... 17
6.6 Severability...................................................... 17
6.7 Equitable Remedies................................................ 18
6.8 Attorneys' Fees................................................... 18
6.9 Notices........................................................... 18
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.. 19
6.11 Confidentiality................................................... 21
6.12 Computation of Time............................................... 21
6.13 Survival.......................................................... 21
6.14 Time of the Essence............................................... 21
EXHIBIT A: Excluded Interests
EXHIBIT B: Consideration
EXHIBIT C: Permitted Encumbrances
EXHIBIT D: Operating Partnership Agreement
EXHIBIT E: Registration Rights Agreement
EXHIBIT F: Escrow Agreement
ii
<PAGE>
CONTRIBUTION AGREEMENT
----------------------
This Contribution Agreement (the "Contribution Agreement") is executed as
----------------------
of the 29th day of January, 1998 by LaSalle Hotel Operating Partnership, L.P.
(the "Operating Partnership"), a Delaware limited partnership, and the
---------------------
Contributors whose names are set forth in Exhibit A hereto (each, a
---------
"Contributor" and, collectively, the "Contributors").
----------- ------------
WHEREAS, in connection with the consolidation of its hotel acquisition and
ownership business, LaSalle Partners intends to form a Maryland real estate
investment trust (the "REIT") that will be the sole general partner and a
----
limited partner of the Operating Partnership and to effect an initial public
offering (the "IPO") of the REIT's common shares of beneficial interest ("Common
--- ------
Shares");
- ------
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in the following ten hotel properties:
Radisson Hotel South and Plaza Tower, Bloomington, Minnesota; Le Meridien New
Orleans Hotel, New Orleans, Louisiana; Le Meridien Dallas Hotel, Dallas, Texas;
The Omaha Marriott Hotel, Omaha, Nebraska; the LaGuardia Marriott Hotel, New
York, New York; Marriott Seaview Resort, Galloway Township, New Jersey; The
Camberley Plaza Sabal Park, Tampa, Florida; Holiday Inn Plaza Park, Visalia,
California; Holiday Inn Beachside, Key West, Florida; and Le Montrose Suite
Hotel de Gran Luxe, West Hollywood, California;
WHEREAS, it is further understood that the Operating Partnership may
acquire, either before or after the IPO, interests in additional hotel
properties located within or outside the United States;
WHEREAS, each Contributor owns partnership interests in Le Montrose Limited
Partnership, an Illinois limited partnership (the "Asset Entity") which owns fee
------------
interests in the land and improvements known as Le Montrose All Suite Hotel De
Gran Luxe (the "Property");
--------
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the aforementioned partnership
interests owned by such Contributor and (except for the Excluded Interests set
forth in Exhibit B) any other direct or indirect interests such Contributor may
---------
have, whether now owned or hereinafter acquired, in the Asset Entity or the
Property (the Property and all personal property related thereto or to the
operation thereof is hereinafter referred to as an "Asset" and each such direct
-----
or indirect interest (except for the Excluded Interests) of a Contributor in
such Asset Entity or in such Asset, is referred to individually as an "Interest"
--------
and collectively, as such Contributor's "Interests");
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
<PAGE>
ARTICLE I. CONTRIBUTION TERMS AND CLOSING
------------------------------
PROCEDURES
- ----------
1.1 Acquisition of Interests. At the Final Closing (defined below),
------------------------
each Contributor shall, subject to Section 1.4 hereof, contribute, transfer,
assign, and convey to the Operating Partnership and the Operating Partnership
shall (i) acquire and accept from such Contributor, all right, title and
interest of such Contributor in such Contributor's Interests, free and clear of
all Encumbrances (as defined in Section 2.1 hereof) except Permitted
Encumbrances (as defined in Section 2.1 hereof), and (ii) deliver to such
Contributor such Contributor's Consideration (defined below), both in accordance
with this Contribution Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does not
-----------------
occur by December 31, 1998 (the "Termination Date"), this Contribution Agreement
----------------
shall be deemed terminated and shall be of no further force and effect and
neither the Operating Partnership nor the Contributors shall have any further
obligations hereunder.
1.3 Consideration. The full consideration for each Contributor's
-------------
Interests (such consideration with respect to such Contributor is hereinafter
referred to as such Contributor's "Consideration") shall be an amount payable in
-------------
cash and/or a number of Units (as hereinafter defined) as set forth in Exhibit
A, subject to the terms and provisions of Article IV hereof providing for
adjustments to each Contributor's Consideration based on closing adjustments; it
being understood that it is the intention of the parties to this Contribution
Agreement that any Minimum Working Capital (as defined in Section 4.1(c) hereof)
and any balances remaining in any furniture, fixtures and equipment reserve
accounts are to be transferred to the Operating Partnership as a part of the
Asset. As used herein, the term "Units" means units of limited partnership
-----
interest in the Operating Partnership.
1.4 Closing; Condition to Obligations. In connection with its
---------------------------------
acquisition of the Contributors' Interests, the Operating Partnership will
notify the Contributors of a closing date, which date will be no earlier than
five (5) business days after such notification and no later than December 15,
1998 (fifteen (15) business days prior to the Termination Date), for the initial
closing (the "Initial Closing") of the acquisition contemplated by this
---------------
Contribution Agreement. At or before such Initial Closing, which shall be held
at the offices of Brown & Wood llp, One World Trade Center, New York, New York
10048 or such other place as is determined by the Operating Partnership in its
sole discretion at a time specified by the Operating Partnership in its sole
discretion, the Operating Partnership and the Contributors will execute all
closing documents (the "Closing Documents") required by the Operating
-----------------
Partnership in accordance with Section 1.5 hereof and deposit the same in escrow
with Brown & Wood llp, New York, New York, pursuant to an escrow agreement in
substantially the form of Exhibit F hereto, as escrow agent of the Operating
Partnership (the "Closing Agent").
-------------
The transactions contemplated by this Contribution Agreement and by
the Closing Documents executed and deposited in connection with such exercise
will be consummated at the Final Closing (as hereinafter defined) only if (i)
the closing of the IPO (the "IPO Closing") is consummated by the earlier of (a)
-----------
fifteen (15) business days after the date of the
2
<PAGE>
Initial Closing and (b) the Termination Date and (ii) the Total Company
Enterprise Value (as defined in Exhibit A) is equal to or greater than
$405,000,000. If the IPO Closing occurs by such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing, cause to be delivered to the Closing Agent with
respect to each Contributor (i) the cash portion of such
Contributor's Consideration, if any (such cash portion, the
"Cash Portion"), and (ii) if applicable, a certificate of
------------
the General Partner of the Operating Partnership certifying
that such Contributor has been or will be, effective upon
the Final Closing (as hereinafter defined), admitted as a
limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will
indicate that such Contributor is the holder of the number
of Units which are called for pursuant to the Consideration
as adjusted pursuant to Article IV hereof;
(b) upon receipt of the Consideration set forth in clause (a)
above, the Closing Agent will release the Closing Documents
to the Operating Partnership and deliver to the Contributor
the Cash Portion, if any, and, if requested by the
Contributor, a copy of such General Partner's certificate;
and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "Final Closing").
-------------
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a breach of or other
exception with respect to Article 2 hereof or has otherwise materially breached
this Contribution Agreement (any such Contributor, a "Non-Complying
-------------
Contributor"), in which case the Operating Partnership shall, in lieu of the
delivery with respect to such Contributor pursuant to clause (a) above, notify
the Closing Agent of such election and direct the Closing Agent to return such
Contributor's Closing Documents and Ancillary Agreements (as defined below) to
such Contributor. The election of the Operating Partnership to not acquire all
or any portion of the Interests of a particular Non-Complying Contributor shall
not affect the obligations of any other Contributor hereunder, including any
other Non-Complying Contributor.
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be destroyed or damaged by fire or other casualty, then
this Contribution Agreement may, at the option of the Operating Partnership, be
terminated with respect to the Asset Entity, the Assets of which have been
destroyed or damaged. If, after the occurrence of any such casualty affecting
an
3
<PAGE>
Asset Entity's Assets, this Contribution Agreement is not so terminated relative
to such Asset Entity, the Operating Partnership may elect to (i) purchase the
given Contributors' Interests in such Asset Entity or Assets, as the case may
be, and (ii) direct such Contributors to pay or cause to be paid to the
Operating Partnership any sums collected under any policies of insurance because
of damage due to such casualty and otherwise assign to the Operating Partnership
all rights to collect such sums as may then be uncollected; provided, however,
that the Contributors shall not adjust or settle any insurance claim without the
Operating Partnership's prior written consent, not to be unreasonably withheld
or delayed. Under such circumstances, the Consideration payable upon such
purchase shall be reduced by the amount of any deductibles under the applicable
insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8, neither party shall have any
obligations under the Closing Documents or under any agreements or instruments
executed in connection with the transactions contemplated hereunder or
thereunder (such other agreements or instruments, collectively, "Ancillary
---------
Agreements"), this Contribution Agreement, the Closing Documents and the
- ----------
Ancillary Agreements shall be deemed null and void ab initio and the Closing
---------
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent in accordance with the previous paragraph.
1.5 Documents to be Delivered at Closing. At the Initial Closing, each
------------------------------------
Contributor shall, directly or through the attorney-in-fact appointed pursuant
to Article 4 hereof, execute, acknowledge where deemed desirable or necessary by
the Operating Partnership, and deliver to the Closing Agent, in addition to any
other documents mentioned elsewhere herein, the following:
(a) An Assignment of Interests (the "Assignment"), which assignment
----------
shall be in a form satisfactory to the Operating Partnership, shall contain a
warranty of title that such Contributor owns such Contributor's Interests free
and clear of all Encumbrances (as defined in Section 2.1 hereof), except, where
applicable, for the Permitted Encumbrances (as defined in Section 2.1 hereof)
and shall either (i) reaffirm the accuracy of all representations and warranties
and the satisfaction of all covenants made by such Contributor in Article II
hereof or (ii) if such reaffirmation cannot be made, identify those
representations, warranties and covenants of Article II hereof (other than
Section 2.5 hereof) with respect to which circumstances have changed, represent
that such Contributor has used all reasonable efforts within its control to
prevent and remedy such breach, and reaffirm the accuracy of all other
representations and warranties and the satisfaction of all other covenants made
by such Contributor in Article II hereof.
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests and effectuate the transactions contemplated
hereby, including, without limitation, deeds, assignments of ground leases and
space leases (as applicable), transfer tax and gains tax returns and any other
filings with any applicable governmental jurisdiction in which the
4
<PAGE>
Operating Partnership is required to file its partnership documentation or the
recording of the Assignment is required.
1.6 Cessation of IPO. If at any time the Operating Partnership or the
----------------
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO (the date of such determination being referred to as the
"Cessation Date"), the Operating Partnership will so advise each Contributor in
- ---------------
writing and thereupon all parties hereto will be relieved of all obligations
under this Contribution Agreement, all Ancillary Agreements, and all Closing
Documents (except for obligations arising under Sections 1.7, 2.5 and 3.2
hereof).
1.7 Closing Costs. The Operating Partnership agrees to pay all of the
-------------
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to this Agreement, including, without
limitation, any applicable transfer and sales taxes and any transfer fee due in
connection with the assumption of existing mortgage debt by the Operating
Partnership.
1.8 Default. (a) If, after notifying the Contributors of a date for the
-------
Initial Closing, the Operating Partnership fails to close (including a failure
due to the IPO Closing not occurring), then the Operating Partnership will pay
to each Contributor the sum of $100.00 as liquidated and agreed-upon damages.
It would be difficult, if not impossible, to ascertain the actual measure of
each Contributor's damages in the event of the Operating Partnership's default
and the parties agree that $100.00 is a fair reflection of each Contributor's
damages in the event of the Operating Partnership's default.
(b) If any Contributor defaults with respect to its obligations under
this Contribution Agreement, the Operating Partnership shall be entitled to
exercise against each such Contributor any and all remedies provided at law or
in equity, including but not limited to, the right to specific performance. No
default by any Contributor hereunder shall in any way limit or affect the
obligations of any other Contributor hereunder.
1.9 Further Assurances. Each Contributor will, from time to time, execute
------------------
and deliver to the Operating Partnership all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Operating Partnership may reasonably request in order to effect the
transactions contemplated by this Contribution Agreement, including instruments
or documents deemed necessary or desirable by the Operating Partnership to
effect and evidence the conveyance of such Contributor's Interests in accordance
with the terms of this Contribution Agreement. The provisions of this Section
1.9 shall survive the Final Closing.
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
-----------------------------
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set
5
<PAGE>
forth in this Article II, which representations and warranties (unless otherwise
noted) are true as of the date hereof. As a condition to the Operating
Partnership's obligation to complete the acquisition of any Contributor's
Interests after the exercise of the Contribution Right, such representations and
warranties must continue to be true as of the date of the Initial Closing and as
of the date of the Final Closing.
2.1 Title to Interests. Each Contributor owns its Interests beneficially
------------------
and of record, free and clear of any claim, lien, pledge, voting agreement,
option, charge, security interest, mortgage, deed of trust, encumbrance, rights
of assignment, purchase rights or other rights of any nature whatsoever
(collectively, "Encumbrances"). Title to the Property is free and clear of any
------------
Encumbrance, except as disclosed as exceptions in the title report for real
property owned or leased by the Asset Entity, dated on or after the date the
Property was acquired by the Asset Entity, provided such title exceptions are
satisfactory to the Operating Partnership in its sole discretion, and as set
forth on Exhibit C attached hereto (any such encumbrance, a "Permitted
--------- ---------
Encumbrance"), and has full power and authority to convey free and clear of any
- -----------
Encumbrances (except, where applicable, the Permitted Encumbrances), its
Interests and, upon delivery of any Assignment by such Contributor conveying its
Interests and delivery of Consideration for such Interests as herein provided,
the Operating Partnership will acquire good and valid title thereto, free and
clear of any Encumbrance except Encumbrances created in favor of the Operating
Partnership by the transactions contemplated hereby and, where applicable, the
Permitted Encumbrances. No Contributor will consent to join in or in any way
effect the transfer of any Asset prior to the Final Closing. At the Final
Closing, if so requested, Contributors will execute all documents necessary to
enable a title insurance company (acceptable to the Operating Partnership, in
its sole discretion) to issue to the Operating Partnership an ALTA Form B (1987
or later) Owner's Policy and such endorsements as the Operating Partnership may
reasonably request, insuring fee simple and/or leasehold title to all real
property and improvements comprising all or any part of the Assets to the
Operating Partnership; provided that each Contributor's cost of complying with
this requirement shall be limited to ten percent of the Consideration to be
received by such Contributor, which amount shall be deducted from such
Consideration at the Final Closing. Each of such Contributor's Interests have
been validly issued and Contributor has funded (or will fund before the same is
past due) all capital contributions and advances to the Asset Entity in which
such Interest represents an interest that are required to be funded or advanced
prior to the date hereof and the date of the Initial Closing and the Final
Closing. There are no agreements, instruments or understandings with respect to
any of such Contributor's Interests except as set forth in the partnership
agreement of the Asset Entity in which an Interest represents a limited partner
or general partner interest or as disclosed in writing to the Operating
Partnership. Such Contributor has no interest, either direct or indirect, in
any of the Assets except for (a) the Interests owned by it which are the subject
of this Contribution Agreement, (b) the Excluded Interests, where applicable,
and (c) direct or indirect interests in partnerships or other entities which are
themselves Contributors hereunder. Such Contributor covenants that no
Encumbrance on his Interests (except, where applicable, the Permitted
Encumbrances) will be in existence as of the date of the Final Closing. In
making the representations in this Section 2.1 regarding the absence of
Encumbrances, each Contributor may assume that the consents and waivers of
rights set forth in Section 6.10 hereof have been given by all partners of
partnerships in which such Contributor's Interest represent direct or
6
<PAGE>
indirect interests. Notwithstanding anything to the contrary contained herein,
to the extent that the Contributor's Interests transferred hereunder constitute
interests in partnerships or other entities ("Continuing Partnerships") which
-----------------------
will continue in existence after the consummation of the transactions
contemplated hereby, such Interests are and will remain subject to the terms and
provisions of the partnership or other organizational agreements (as amended) of
the Continuing Partnerships, including without limitation, restrictions,
options, priorities and partnership loans provided for therein.
2.2 Authority. Such Contributor has full right, authority, power and
---------
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to transfer, convey,
assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms.
Except for any breaches, violations or defaults which will be waived or cured
prior to the Initial Closing and all loans, indentures, creditor agreements or
other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing, the execution, delivery and performance
of this Contribution Agreement and each such agreement, document and instrument
by or on behalf of such Contributor: (a) does not and will not violate such
Contributor's partnership agreement, operating agreement, declaration of trust,
charter or bylaws, if applicable, or other organizational documentation; (b)
does not and will not violate any foreign, federal, state, local or other laws
applicable to or binding on such Contributor or require such Contributor to
obtain any approval, consent or waiver of, or make any filing with, any person
or authority (governmental or otherwise) that has not been obtained or made or
which does not remain in effect; and (c) does not and will not result in a
breach of, constitute a default under, accelerate any obligation under or give
rise to a right of termination of, any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which such Contributor is a party or by which the property
of such Contributor is bound or affected, or result in the creation of any
Encumbrance on any of the property or assets of any partnership in which an
Interest of such Contributor represents an interest. In making the
representations set forth in this Section 2.2, each Contributor may assume that
the consents and waivers of rights set forth in Section 6.10 hereof have been
given by all partners of partnerships or owners of voting interests in entities
in which such Contributor's Interests represent direct or indirect interests.
2.3 Litigation. There is no litigation or proceeding, either judicial or
----------
administrative, pending or overtly threatened, affecting all or any portion of
such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such
7
<PAGE>
Contributor's ability to enter into and perform all of its obligations under
this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor represents that it has
---------------------------
not made any agreement with, and will not enter into any agreement with, and has
no obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Interests or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Interests. In making the representations set forth in this
Section 2.4, the Contributor may assume that the consents and waivers of rights
set forth in Section 6.10 hereof have been given by all partners of the Asset
Entities.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
----------
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless the Operating Partnership for all costs and expenses incurred
by the Operating Partnership as a result of a breach of this representation.
The provisions of this Section 2.5 shall survive termination of this
Contribution Agreement.
2.6 Investment Representations and Warranties. Each Contributor who is
-----------------------------------------
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of the
agreement of limited partnership of the Operating Partnership (in substantially
the form attached hereto as Exhibit D) (the "Partnership Agreement"), including
---------------------
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended from time in accordance with its terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such investment. If such
Contributor retained a person to represent or advise it with respect to the
investment in Units that may be made hereby then, at Contributor's request, such
Contributor shall, prior to or at the Initial Closing, (i) acknowledge in
writing such representation and (ii) cause such representative or advisor to
deliver a certificate to the Operating Partnership containing such
representations as are reasonably requested by the Operating Partnership.
8
<PAGE>
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership and/or Contributor's
position (in the case of certain individual Contributors) as a director or
executive officer of the REIT.
(d) The Units to be issued to such Contributor will be acquired by
such Contributor for its own account (or if such Contributor is a trustee, for a
trust account) for investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Contributor's right
(subject to the terms of the Units) at all times to distribute the Units to
affiliates of such Contributor or to sell or otherwise dispose of all or any
part of its Units under an exemption from such registration available under the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
--------------
securities laws, and subject, nevertheless, to the disposition of its assets
being at all times within its control. Such Contributor was not formed for the
specific purpose of acquiring an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to
such Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws. Such Contributor hereby acknowledges that because of
the restrictions on transfer or assignment of such Units to be issued hereunder
which will be set forth in the Partnership Agreement and/or in a Registration
Rights Agreement (as defined in Section 5.1 hereof), such Contributor may have
to bear the economic risk of the investment commitment evidenced by this
Contribution Agreement and any Units acquired hereby for an indefinite period of
time, although (i) under the terms of the Partnership Agreement, as it will be
in effect at the time of the IPO, Units
9
<PAGE>
will be redeemable at the request of the holder thereof at any time after the
first anniversary of their issuance for cash or (at the option of the REIT) for
Common Shares of the REIT and (ii) the holder of any such Common Shares issued
upon a presentation of Units for redemption will be afforded certain rights to
have such Common Shares registered for resale under the Securities Act or
applicable state securities laws under the Registration Rights Agreement as
described more fully below.
(f) Contributor is an "accredited investor" as defined in Rule 501 of
Regulation D under the Securities Act.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within
--------------------- --------------
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 Covenant to Remedy Breaches. Each Contributor covenants to use all
---------------------------
reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of such Contributor hereunder, (b) to satisfy all
covenants of such Contributor hereunder and (c) to promptly cure any breach of a
representation, warranty or covenant of such Contributor hereunder upon its
learning of same.
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
--------------------------------------------------------
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
---------
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by the Operating Partnership: (a) does not
and will not violate the Partnership Agreement; (b) does not and will not
violate any foreign, federal, state and local or other laws applicable to
Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
10
<PAGE>
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Operating Partnership is a party
or by which the property of the Operating Partnership is bound or affected.
3.2 No Brokers. The Operating Partnership represents that it has not
----------
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
any Contributor to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
ARTICLE IV. CLOSING ADJUSTMENTS
-------------------
4.1 Prorations. The Consideration for the Asset shall be subject to
----------
prorations and credits as follows to be determined as of 12:01 A.M. local time
at the location of the Property on the date of the Final Closing (the
"Adjustment Time"), it being understood that the date of the Final Closing shall
be the first day of income and expense to the Operating Partnership:
(a) Hotel Revenues. Except as set forth below, the Asset Entity
--------------
shall be entitled to all hotel room, food service, bar, beverage and liquor
revenues and charges and all revenues and charges from hotel room
operations, restaurant operations, hotel banquet and conference facility
operations, and other revenue of any kind attributable to the same for the
period prior to the Adjustment Time. The Operating Partnership shall be
entitled to all hotel room, food service, bar, beverage and liquor revenues
and charges and all revenues and charges from restaurant operations, hotel
banquet and conference facility operations, and all other revenue of any
kind attributable to any of the same for the period on and after the
Adjustment Time. Notwithstanding the foregoing, the Operating Partnership
shall be entitled to one-half (1/2) of the revenue from hotel rooms at the
Asset for the night preceding the date of the Final Closing. The Operating
Partnership shall not give the Asset Entity a credit at the date of the
Final Closing for any accounts receivable in connection with the Asset as
of the date of the Final Closing; but the Operating Partnership shall use
reasonable efforts to collect such accounts receivable and shall remit them
to the Asset Entity upon collection, less all reasonable costs of
collection; provided, however, any collection of account receivables shall
first be applied to those accruing after the date of the Final Closing.
The Asset Entity shall provide the Operating Partnership a credit against
the Consideration for the Asset in an amount equal to all guest reservation
deposits held by the hotel for hotel guests arriving or staying after check
out time for the Asset on the date of the Final Closing.
(b) Rents payable under Tenant Leases. Prepaid rent,
---------------------------------
nondelinquent rents, and tax reimbursements under any space leases
affecting the Asset (collectively, "Rents") collected subsequent to the
-----
date of the Final Closing and properly allocable to
11
<PAGE>
periods prior to the date of the Final Closing, net of the Operating
Partnership's costs of collection, if any, shall be paid, promptly after
receipt, to the Asset Entity, but subject to all of the provisions of this
Section hereof; and any portion thereof properly allocable to periods
subsequent to the date of the Final Closing, if any, shall be paid to the
Operating Partnership. Any amount collected from a tenant shall first be
applied to such tenant's current monthly rental and then to past due
amounts in the reverse order in which they were due. Any advance rental
payments or deposits paid by tenants prior to the date of the Final Closing
and applicable to the period of time subsequent to the date of the Final
Closing and any security deposits or other amounts paid by tenants,
together with any interest on both thereof to the extent such interest is
due to tenants, shall be credited to the Operating Partnership on the date
of the Final Closing. No credit shall be given the Asset Entity for
accrued and unpaid Rent or any other non-current sums due from tenants
until said sums are paid.
(c) Minimum Working Capital; Cash and Cash Reserves. The Asset
-----------------------------------------------
shall, as of the Closing Time, have working capital equal to $130,000
("Minimum Working Capital"). To the extent all petty cash funds at the
Asset and all cash in any operating accounts for the Asset exceed the
amount required to fund Minimum Working Capital, the Operating Partnership
shall give the Asset Entity a credit on the date of the Final Closing. To
the extent such cash is insufficient to fund Minimum Working Capital, the
deficiency shall be deducted from the consideration payable to Contributor
in accordance with Exhibit A. Any balances remaining in any furniture,
fixtures and equipment reserve accounts shall be transferred to the
Operating Partnership as a part of the Asset. The Operating Partnership
and the Asset Entity shall make mutually satisfactory arrangements for
counting such cash and determining the balances in the operating accounts
as of the Adjustment Time.
(d) Trade Payables. Trade payables shall mean (for all purposes)
--------------
under this Contribution Agreement, open accounts payable to trade vendors
or suppliers of the Asset's hotel, restaurant, bar or similar facilities.
The Asset Entity agrees to give the Operating Partnership a credit on the
date of the Final Closing for all trade payables from the Asset which have
accrued on or prior to the Adjustment Time, and the Operating Partnership
shall be obligated to pay such payables to the extent it has received a
credit from the Asset Entity on the date of the Final Closing. The
Operating Partnership agrees to pay all trade payables from the Asset which
have accrued after the Adjustment Time and shall and hereby does indemnify
and hold the Asset Entity harmless from payment of the same. The
indemnities contained or provided for in this section survive the date of
the Final Closing.
(e) Banquet and Event Deposits. The Operating Partnership shall
--------------------------
receive and be entitled to a credit against the Consideration for all
prepaid deposits for banquets and other functions that are scheduled to
take place at the Asset on or after the date of the Final Closing.
(f) Service Contracts and Equipment Leases. Any amounts prepaid
--------------------------------------
or payable under any Service Contracts or Equipment Leases which the
Operating
12
<PAGE>
Partnership has elected to assume shall be prorated at the date of the
Final Closing as of the date of the Final Closing with the Asset Entity
obligated for all sums accrued prior to the Adjustment Time and the
Operating Partnership obligated for all sums accrued after the Adjustment
Time.
(g) Sales Tax. The Operating Partnership shall receive a credit
---------
for any and all sales, occupancy, use or other taxes due in connection with
the operation of the Asset which have accrued prior to the date of the
Final Closing and shall indemnify the Operating Partnership for all such
taxes to the extent the Operating Partnership has not received such credit.
The Operating Partnership shall be responsible to pay all such taxes to the
extent it has received a credit and shall indemnify the Asset Entity for
such taxes. The indemnifications set forth herein shall survive the date
of the Final Closing.
(h) Taxes. The Operating Partnership shall receive a credit for
-----
any accrued but unpaid real estate taxes imposed in respect of the Asset
for the portion of the current year which has elapsed prior to the date of
the Final Closing (and to the extent unpaid, for prior years). If the
amount of any such taxes have not been determined as of the date of the
Final Closing, such credit shall be based on the most recent ascertainable
taxes and shall be reprorated upon issuance of the final tax bill. The
Asset Entity shall also give the Operating Partnership a credit for any
special assessments which are levied or charged against the Asset prior to
date of the Final Closing, whether or not then due and payable.
(i) Utilities. Utilities and fuel, including, without
---------
limitation, steam, water, electricity, gas and oil, shall be prorated as of
the date of the Final Closing. The Asset Entity shall cause the meters, if
any, for utilities to be read the day on which the Final Closing occurs and
to pay the bills rendered on the basis of such readings. If any such meter
reading for any utility is not available, then adjustment therefor shall be
made on the basis of the most recently issued bills therefor which are
based on meter readings no earlier than thirty (30) days prior to the date
of the Final Closing; and such adjustment shall be reprorated when the next
utility bills are received.
(j) Employee Expenses. Wages, benefit payments, vacation pay (or
-----------------
the value of any time accrued with respect thereto), and any other
compensation or benefits payable to all persons currently employed for work
in or in connection with the Asset and its operation (collectively,
"Employees") shall be prorated as of the date of the Final Closing; the
Operating Partnership shall not be required to assume any obligation with
respect to any employee benefits that were incurred prior to the date of
the Final Closing and for which the Operating Partnership did not receive a
credit therefor; the Asset Entity shall indemnify the Operating Partnership
against any claim in connection therewith. The indemnity provided herein
shall survive the date of the Final Closing.
13
<PAGE>
(k) Ground Lease Rents. Prepaid rent, nondelinquent rents,
------------------
delinquent rents, tax reimbursements, and other fees and costs under any
ground, or other leases, or parking agreements to which the Asset is
subject (collectively, "Ground Rents") shall be adjusted and prorated as of
------------
the date of the Final Closing.
(l) Other Expenses. Other prepaid expenses to which the Asset is
--------------
reasonably subject shall be adjusted and prorated as of the date of the Final
Closing.
(m) Gift Certificates. The Operating Partnership shall receive a
-----------------
credit for all gift certificates issued by the Asset and paid for by or on
behalf of the recipient. The Operating Partnership agrees to honor all non-
expired gift certificates issued by the Asset to the extent such non-expired
gift certificates are itemized at the Final Closing.
At least five (5) days prior to the date of the Final Closing, the Asset
Entity shall deliver to the Operating Partnership copies of all information and
records necessary to support the prorations hereunder. In the event any
prorations made pursuant hereto shall prove incorrect for any reason whatsoever,
either party shall be entitled to an adjustment to correct the same.
4.2 Accounts Receivable. The Asset Entity shall retain all accounts
-------------------
receivable and other income items which are attributable to periods prior to the
date of the Final Closing. The Asset Entity shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the Asset Entity. Except for sums actually received by the Operating
Partnership pursuant to the immediately preceding sentence, the Operating
Partnership shall assume no obligation to collect or enforce the payment of any
amounts that may be due to the Asset Entity, except that the Operating
Partnership shall render reasonable assistance, at no expense to the Operating
Partnership, to the Asset Entity after the Final Closing in the event the Asset
Entity proceeds against any third-party to collect any accounts receivable or
other income items due the Asset Entity.
4.3 Security Deposits. An amount equal to all tenant security deposits
-----------------
and all other deposits for advance reservations, banquets or future services or
made in connection with the space leases or the guest bookings and interest
thereon, if any, and any other amounts due with respect to such deposits shall
be paid over to the Operating Partnership at the Final Closing.
4.4 Timing of Calculations; Cooperation. Each Asset Entity and/or
-----------------------------------
Transferor Entity and the Operating Partnership agree to use reasonable efforts
to reconcile, prorate, and adjust all of the foregoing items upon the Final
Closing and, in all events, such reconciliation, proration and adjustment shall
be completed within ninety (90) days after the date of the Final Closing. In
the event any adjustments or prorations made pursuant to this Contribution
14
<PAGE>
Agreement are, subsequent to Final Closing, found to be erroneous, then either
party hereto who is entitled to additional amounts shall invoice the other party
for such additional amounts as may be owing, and such amounts shall be paid
promptly by the other party upon receipt of invoice. Such invoice shall be
accompanied by reasonable substantiating evidence.
4.5 Allocation of Adjustments. All adjustments contemplated by this
-------------------------
Article IV shall, to the extent practicable, be made by adjusting (either up or
down) the cash portion amount of the Consideration and/or the number of Units
issued to each Contributor by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to
the Asset Entity in which the Contributor owns an interest. The amount of an
Asset Entity's adjustments calculated pursuant to this Article IV allocated to
each Contributor shall be that portion equal to that Contributor's pro rata
equity interest in each Asset Entity.
ARTICLE V. POWER OF ATTORNEY
-----------------
5.1 Grant of Power of Attorney. Each Contributor does hereby irrevocably
--------------------------
appoint Jonathan E. Bortz, Michael Barnello, and the Operating Partnership, and
each of them individually and any successor thereof from time to time (such
persons or the Operating Partnership or any such successor of any of them acting
in his, her or its capacity as attorney-in-fact pursuant hereto, the "Attorney-
--------
in-Fact") as the true and lawful attorney-in-fact and agent of such Contributor,
- -------
to act in the name, place and stead of such Contributor:
(a) To enter into a registration rights agreement a form of which is
attached hereto as Exhibit E (the "Registration Rights Agreement").
-----------------------------
(b) To enter into a lock-up agreement (the "Lock-up Agreement") which
-----------------
provides that the Contributors will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of (or announce any offer, sale, offer of sale, contract
of sale, grant of any option to purchase or other sale or disposition of)
any REIT Common Shares or any securities convertible into or exchangeable
for or substantially similar to REIT Common Shares, for a period of one
year from the IPO Closing without the prior written consent of the managing
underwriter named in the Lock-up Agreement.
(c) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the
execution of Closing Documents, Ancillary Agreements, the Partnership
Agreement, any other documents relating to the acquisition by the Operating
Partnership of such Contributor's Interests, and any consents contemplated
by Section 6.10 hereof) and, in general, to do all things and to take all
action which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transaction
contemplated by this Contribution Agreement, the Ancillary Agreements, if
any, and the Closing Documents as fully as could such Contributor if
personally present and acting.
15
<PAGE>
The Power of Attorney granted by each Contributor pursuant to this Article
V and all authority conferred hereby is granted and conferred subject to and in
consideration of the interests of the Operating Partnership, the REIT and the
other Contributors and is for the purpose of completing the transactions
contemplated by this Contribution Agreement. The Power of Attorney shall
terminate upon termination of this Contribution Agreement. The Power of
Attorney of each Contributor granted hereby and all authority conferred hereby
is coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of such Contributor or by operation of law, whether by the
death, disability, incapacity or liquidation of such Contributor or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which such Contributor is acting as a
fiduciary or fiduciaries), and if, after the execution hereof, such Contributor
shall die or become disabled or incapacitated or is liquidated, or if any other
such event or events shall occur before the completion of the transactions
contemplated by this Contribution Agreement, the Attorney-in-Fact shall
nevertheless be authorized and directed to complete all such transactions as if
such death, disability, incapacity, liquidation or other event or events had not
occurred and regardless of notice thereof. Each Contributor acknowledges that
Jonathan E. Bortz, Michael Barnello and the Operating Partnership have, and any
successor thereof acting as Attorney-in-Fact may have an economic interest in
the transactions contemplated by this Contribution Agreement. Each Contributor
agrees that, at the request of the Operating Partnership, it will promptly
execute a separate power of attorney on the same terms set forth in this Article
V, such execution to be witnessed and notarized.
5.2 Limitation on Liability. It is understood that the Attorney-in-Fact
-----------------------
assumes no responsibility or liability to any person by virtue of the Power of
Attorney granted by each Contributor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
formation of the REIT, the acquisitions of the Interests by the Operating
Partnership, the Registration Statement, the Prospectus or any Preliminary
Prospectus, nor for any aspect of the offering of the REIT's Common Shares, and
it shall not be liable for any error of judgment or for any act done or omitted
or for any mistake of fact or law except for its own gross negligence or bad
faith. Each Contributor agrees that the Attorney-in-Fact may consult with
counsel of its own choice (who may be counsel for the Operating Partnership or
the REIT) and it shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith and in accordance
with the opinion of such counsel. It is understood that the Attorney-in-Fact
may, without breaching any express or implied obligation to the Contributor
hereunder, release, amend or modify any other Power of Attorney granted by any
other Contributor hereunder or by any other person under any related agreement.
The provisions of this Section 5.2 shall not limit or otherwise affect the
obligations of the Operating Partnership (acting for itself and not as Attorney-
in-Fact) under the other Articles of this Contribution Agreement.
5.3 Ratification; Third Party Reliance. Each Contributor does hereby
----------------------------------
ratify and confirm all that the Attorney-in-Fact shall lawfully do or cause to
be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.
16
<PAGE>
ARTICLE VI. MISCELLANEOUS
-------------
6.1 Amendment. Any amendment hereto shall be effective only against those
---------
parties hereto who have acknowledged in writing their consent to such amendment.
No waiver of any provisions of this Contribution Agreement shall be valid unless
in writing and signed by the party against whom enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This Contribution
----------------------------------------------
Agreement and all Ancillary Agreements, including the Lease Agreement to be
entered into between the Operating Partnership and OLS Le Montrose, LLC, (a)
constitute the entire agreement and supersede conflicting provisions set forth
in all other prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, (b) may be executed in
several counterparts, each of which will be deemed an original and all of which
shall constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of New York without giving effect to the conflict of law provisions
thereof.
6.3 Assignability. This Contribution Agreement shall be binding upon, and
-------------
shall be enforceable by and inure to the benefit of, the parties hereto and
their respective heirs, legal representatives, successors and assigns; provided,
however, that this Contribution Agreement may not be assigned (except by
operation of law) by any party without the prior written consent of the other
parties, and any attempted assignment without such consent shall be void and of
no effect.
6.4 Titles. The titles and captions of the Articles, Sections and
------
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution Agreement
-----------------------
is intended, nor shall it be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any customer, affiliate,
stockholder, partner, director, officer or employee of any party hereto or any
other person or entity, provided, however, that Sections 5.2, 5.3, 6.3 and 6.10
of this Contribution Agreement shall be enforceable by and shall inure to the
benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution Agreement, or the
------------
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Contribution Agreement and application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Contribution
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision and to execute any amendment, consent or agreement
deemed necessary or desirable by the Operating Partnership to effect such
replacement.
17
<PAGE>
6.7 Equitable Remedies. The parties hereto agree that irreparable damage
------------------
would occur in the event that any of the provisions of this Contribution
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Contribution
Agreement and to enforce specifically the terms and provisions hereof in any
federal or state court located in New York (as to which the parties agree to
submit to jurisdiction for the purposes of such action), this being in addition
to any other remedy to which they are entitled under this Contribution Agreement
or otherwise at law or in equity.
6.8 Attorneys' Fees. In connection with any litigation or a court
---------------
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover all costs incurred, including reasonable attorneys'
fees and legal assistants' fees and costs whether incurred prior to trial, at
trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given under this
-------
Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
LaSalle Hotel Operating Partnership, L.P.
220 East 42nd Street
New York, New York 10017
Attention: Michael Barnello
Phone: 212-661-6161
Telecopy: 212-687-8170
with copies to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attention: Michael F. Taylor
Phone: 212-839-5300
Telecopy: 212-839-5599
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
18
<PAGE>
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.
----------------------------------------------------------------
(a) Each Contributor acknowledges that the agreements contained herein
and the transactions contemplated hereby and any actions taken in contemplation
of the transactions contemplated hereby may conflict with, and may not have been
contemplated by, the partnership agreement of one or more partnerships in which
one or more of such Contributor's Interests represents a direct or indirect
interest or another agreement among one or more holders of such Interests or one
or more of the partners of any such partnership. With respect to each
partnership in which an Interest of a Contributor represents a direct or
indirect interest, each Contributor expressly gives all Consents (and any
consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "Conveyance Action" means, with respect to any
-----------------
partnership having a direct or indirect ownership interest in any Asset, (i) the
conveyance or agreement to convey by a partner thereof or by any holder of an
indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any such partner or holder of any action necessary or desirable to
facilitate any of the foregoing, including, without limitation, the following
(provided that the same are taken in furtherance of the foregoing): any sale or
distribution to, or merger with, any person of a direct or indirect interest in
such partnership, the entering into any agreement with any person that grants to
such person the right to purchase a direct or indirect interest in such
partnership, and the giving of the Consents and Waivers contained in this
Section 6.10 or consents or waivers similar thereto in form or purpose. As used
herein, the term "Consents" means, with respect to any such partnership, any
--------
consent necessary or desirable under the partnership agreement of such
partnership or any other agreement among all or any of the holders of interests
therein or any other agreement relating thereto or referred to therein (i) to
permit any and all Conveyance Actions relating to such partnership or to amend
such partnership agreement and/or other agreements so that no provision thereof
prohibits, restricts, impairs or interferes with any Conveyance Action (such
amendments to include, without limitation, the deletion of provisions which
cause a default under such agreement if interests therein are transferred for
cash), (ii) to admit the Operating Partnership as a substitute limited partner
or general partner of such partnership upon the Operating Partnership's
acquisition of a limited or general partnership interest therein, respectively,
and to adopt such amendment as is necessary or desirable to effect such
admission, (iii) to adopt any amendment as may be deemed desirable by the
Operating Partnership, either simultaneously with or immediately prior to the
acquisition of any interest therein, (iv) to continue such partnership following
the transfer of interest therein to the Operating Partnership, and (v) to merge
such partnership with and into the Operating Partnership. As used herein, the
term "Waivers" means, with respect to a partnership of which an Interest of a
-------
Contributor represents a direct or indirect interest, the waiving of any and all
rights that such Contributor may have with respect to, and (to the extent
possible) that any other person may
19
<PAGE>
have with respect to, or that may accrue to such Contributor or other person
upon the occurrence of, a Conveyance Action relating to such partnership,
including, but not limited to, the following rights: rights of notice, rights to
response periods, rights to purchase the direct or indirect interests of another
partner in such partnership or to sell such Contributor's or other person's
direct or indirect interest therein to another partner, rights to sell such
Contributor's or other person's direct or indirect interest therein at a price
other than as provided herein, or rights to prohibit, limit, invalidate,
otherwise restrict or impair any such Conveyance Action or to cause a
termination or dissolution of such partnership because of such Conveyance
Action. Each Contributor further covenants that such Contributor will take no
action to enjoin, or seek damages resulting from, any Conveyance Action by any
holder of a direct or indirect interest in a partnership in which an Interest of
such Contributor represents a direct or indirect interest. The Waivers and
Consents contained in this Section 6.10 shall terminate upon the termination of
this Contribution Agreement, except as to transactions completed hereunder prior
to termination.
(b) Each Contributor by its execution hereof (i) with respect to each
Asset Entity in which an Interest owned by Contributor represents a direct or
indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree; and (ii) agrees that such Contributor's Consideration may be reduced to
reflect such direct transfer of assets and the consequent receipt of Units
directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent as is
necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner therein
and/or a substitute general partner therein if the Operating Partnership by the
exercise of its Contribution Right acquires a limited partnership interest or a
general partnership interest in such partnership, respectively, (ii) to redeem
the interest of any other partner therein who has not agreed to become a party
to this Contribution Agreement or a similar contribution agreement with the
Operating Partnership, (iii) to transfer to all partners thereof, including any
partner who has not agreed to become a party to this Contribution Agreement,
Units and/or cash (provided that such Contributor receives as a result of all
such distributions and the direct payment of consideration hereunder, an amount
of cash and/or Units that is in conformity with the Consideration of such
Contributor provided for herein), and thereafter, at the Operating Partnership's
option, to dissolve, and (iv) any such other amendment as the Operating
Partnership may deem desirable, provided that such amendment occurs
simultaneously with or immediately prior to the acquisition of the applicable
partnership interest and, provided further, that such amendment will not result
in any increased liability on the part of any Contributor hereunder or under the
applicable partnership agreement. The
20
<PAGE>
Attorney-in-Fact may on behalf of each Contributor execute such consents,
amendments or other instruments as it deems necessary or desirable in connection
with the foregoing.
6.11 Confidentiality. All press releases or other public communications of
---------------
any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
6.12 Computation of Time. Any time period provided for herein which shall
-------------------
end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next
full business day. All times are Eastern Time.
6.13 Survival. It is the express intention and agreement of the parties
--------
hereto that the representations, warranties and covenants of each Contributor
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.14 Time of the Essence. Time is of the essence with respect to all
-------------------
obligations of Contributor under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Contribution
Agreement, or caused the Contribution Agreement to be duly executed on its
behalf, as of the date first written above.
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES
Its General Partner
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
22
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 29, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
Outrigger Lodging Services
By: /s/ Alan Baer
----------------------------
Name: Alan Baer
Title: Senior Vice President
Address of Contributor:
16000 Ventura Boulevard
Encino, CA 91436
Telephone/Facsimile Numbers:
Phone: 818-905-8280
Fax: 818-905-7786
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
23
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Contributor Interest Consideration
- ---------------------------- --------------------- -------------------------------
<S> <C> <C>
Outrigger Lodging Services 13.93% limited See attached valuation formula.
partnership interest
in the Asset Entity
</TABLE>
<PAGE>
EXHIBIT B
---------
EXCLUDED INTERESTS
<PAGE>
EXHIBIT C
---------
PERMITTED ENCUMBRANCES
<PAGE>
EXHIBIT D
---------
OPERATING PARTNERSHIP AGREEMENT
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT F
---------
ESCROW AGREEMENT
<PAGE>
EXHIBIT 10.11
[Durbin]
CONTRIBUTION AGREEMENT
BY AND AMONG
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of January 30, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES................. 2
1.1 Acquisition of Interests............................. 2
1.2 Term of Agreement.................................... 2
1.3 Consideration........................................ 2
1.4 Closing; Condition to Obligations.................... 2
1.5 Documents to be Delivered at Closing................. 4
1.6 Cessation of IPO..................................... 5
1.7 Closing Costs........................................ 5
1.8 Default.............................................. 5
1.9 Further Assurances................................... 5
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS............................ 6
2.1 Title to Interests................................... 6
2.2 Authority............................................ 7
2.3 Litigation........................................... 8
2.4 No Other Agreements to Sell.......................... 8
2.5 No Brokers........................................... 8
2.6 Investment Representations and Warranties............ 8
2.7 FIRPTA Representation................................10
2.8 Covenant to Remedy Breaches..........................10
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP................................10
3.1 Authority............................................11
3.2 No Brokers...........................................11
ARTICLE IV. CLOSING ADJUSTMENTS......................................11
4.1 Prorations...........................................12
4.2 Accounts Receivable..................................15
4.3 Security Deposits....................................15
4.4 Timing of Calculations; Cooperation..................15
4.5 Allocation of Adjustments............................16
ARTICLE V. POWER OF ATTORNEY.........................................16
5.1 Grant of Power of Attorney...........................16
5.2 Limitation on Liability..............................17
5.3 Ratification; Third Party Reliance...................18
ARTICLE VI. MISCELLANEOUS............................................18
6.1 Amendment............................................18
i
<PAGE>
6.2 Entire Agreement; Counterparts; Applicable Law....................18
6.3 Assignability.....................................................18
6.4 Titles............................................................18
6.5 Third Party Beneficiary...........................................18
6.6 Severability......................................................18
6.7 Equitable Remedies................................................19
6.8 Attorneys' Fees...................................................19
6.9 Notices...........................................................19
6.10 Waiver of Rights; Consents with Respect to Partnership Interests..20
6.11 Confidentiality...................................................22
6.12 Computation of Time...............................................22
6.13 Survival..........................................................22
6.14 Time of the Essence...............................................22
EXHIBIT A: Excluded Interests
EXHIBIT B: Consideration
EXHIBIT C: Permitted Encumbrances
EXHIBIT D: Operating Partnership Agreement
EXHIBIT E: Registration Rights Agreement
EXHIBIT F: Escrow Agreement
ii
<PAGE>
CONTRIBUTION AGREEMENT
----------------------
This Contribution Agreement (the "Contribution Agreement") is executed as
----------------------
of the 30th day of January, 1998 by LaSalle Hotel Operating Partnership, L.P.
(the "Operating Partnership"), a Delaware limited partnership, and the
---------------------
Contributors whose names are set forth in Exhibit A hereto (each, a
---------
"Contributor" and, collectively, the "Contributors").
----------- ------------
WHEREAS, in connection with the consolidation of its hotel acquisition and
ownership business, LaSalle Partners intends to form a Maryland real estate
investment trust (the "REIT") that will be the sole general partner and a
----
limited partner of the Operating Partnership and to effect an initial public
offering (the "IPO") of the REIT's common shares of beneficial interest ("Common
--- ------
Shares");
- ------
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in the following ten hotel properties:
Radisson Hotel South and Plaza Tower, Bloomington, Minnesota; Le Meridien New
Orleans Hotel, New Orleans, Louisiana; Le Meridien Dallas Hotel, Dallas, Texas;
The Omaha Marriott Hotel, Omaha, Nebraska; the LaGuardia Marriott Hotel, New
York, New York; Marriott Seaview Resort, Galloway Township, New Jersey; The
Camberley Plaza Sabal Park, Tampa, Florida; Holiday Inn Plaza Park, Visalia,
California; Holiday Inn Beachside, Key West, Florida; and Le Montrose Suite
Hotel de Gran Luxe, West Hollywood, California;
WHEREAS, it is further understood that the Operating Partnership may
acquire, either before or after the IPO, interests in additional hotel
properties located within or outside the United States;
WHEREAS, each Contributor owns partnership interests in Key West Hotel
Investors Limited Partnership, a Delaware limited partnership (the "Asset
-----
Entity") which owns fee interests in the land and improvements known as Holiday
Inn Beachside Resort (the "Property");
--------
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the aforementioned partnership
interests owned by such Contributor and (except for the Excluded Interests set
forth in Exhibit B) any other direct or indirect interests such Contributor may
---------
have, whether now owned or hereinafter acquired, in the Asset Entity or the
Property (the Property and all personal property related thereto or to the
operation thereof is hereinafter referred to as an "Asset" and each such direct
-----
or indirect interest (except for the Excluded Interests) of a Contributor in
such Asset Entity or in such Asset, is referred to individually as an "Interest"
--------
and collectively, as such Contributor's "Interests");
---------
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
-----------------------------------------
1.1 Acquisition of Interests. At the Final Closing (defined below), each
------------------------
Contributor shall, subject to Section 1.4 hereof, contribute, transfer, assign,
and convey to the Operating Partnership and the Operating Partnership shall (i)
acquire and accept from such Contributor, all right, title and interest of such
Contributor in such Contributor's Interests, free and clear of all Encumbrances
(as defined in Section 2.1 hereof) except Permitted Encumbrances (as defined in
Section 2.1 hereof), and (ii) deliver to such Contributor such Contributor's
Consideration (defined below), both in accordance with this Contribution
Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does not occur
-----------------
by December 31, 1998 (the "Termination Date"), this Contribution Agreement shall
----------------
be deemed terminated and shall be of no further force and effect and neither the
Operating Partnership nor the Contributors shall have any further obligations
hereunder.
1.3 Consideration. The full consideration for each Contributor's
-------------
Interests (such consideration with respect to such Contributor is hereinafter
referred to as such Contributor's "Consideration") shall be an amount payable in
-------------
cash and/or a number of Units (as hereinafter defined) as set forth in Exhibit
A, subject to the terms and provisions of Article IV hereof providing for
adjustments to each Contributor's Consideration based on closing adjustments
(which Consideration, inclusive of the prorations provided for in Article IV
hereof, shall in no event be less than $150,000); it being understood that it is
the intention of the parties to this Contribution Agreement that any Minimum
Working Capital (as defined in Section 4.1(c) hereof) and any balances remaining
in any furniture, fixtures and equipment reserve accounts are to be transferred
to the Operating Partnership as a part of the Asset. As used herein, the term
"Units" means units of limited partnership interest in the Operating
- ------
Partnership.
1.4 Closing; Condition to Obligations. In connection with its acquisition
---------------------------------
of the Contributors' Interests, the Operating Partnership will notify the
Contributors of a closing date, which date will be no earlier than five (5)
business days after such notification and no later than December 15, 1998
(fifteen (15) business days prior to the Termination Date), for the initial
closing (the "Initial Closing") of the acquisition contemplated by this
---------------
Contribution Agreement. At or before such Initial Closing, which shall be held
at the offices of Brown & Wood llp, One World Trade Center, New York, New York
10048 or such other place as is determined by the Operating Partnership in its
sole discretion at a time specified by the Operating Partnership in its sole
discretion, the Operating Partnership and the Contributors will execute all
closing documents (the "Closing Documents") required by the Operating
-----------------
Partnership in accordance with Section 1.5 hereof and deposit the same in escrow
with Brown & Wood llp, New York, New York, pursuant to an escrow agreement in
substantially
2
<PAGE>
the form of Exhibit F hereto, as escrow agent of the Operating Partnership (the
"Closing Agent").
-------------
The transactions contemplated by this Contribution Agreement and by the
Closing Documents executed and deposited in connection with such exercise will
be consummated at the Final Closing (as hereinafter defined) only if (i) the
closing of the IPO (the "IPO Closing") is consummated by the earlier of (a)
-----------
fifteen (15) business days after the date of the Initial Closing and (b) the
Termination Date and (ii) the Total Company Enterprise Value (as defined in
Exhibit A) is equal to or greater than $405,000,000. If the IPO Closing occurs
by such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing, cause to be delivered to the Closing Agent with
respect to each Contributor (i) the cash portion of such
Contributor's Consideration, if any (such cash portion, the
"Cash Portion"), and (ii) if applicable, a certificate of
------------
the General Partner of the Operating Partnership certifying
that such Contributor has been or will be, effective upon
the Final Closing (as hereinafter defined), admitted as a
limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will
indicate that such Contributor is the holder of the number
of Units which are called for pursuant to the Consideration
as adjusted pursuant to Article IV hereof;
(b) upon receipt of the Consideration set forth in clause (a)
above, the Closing Agent will release the Closing Documents
to the Operating Partnership and deliver to the Contributor
the Cash Portion, if any, and, if requested by the
Contributor, a copy of such General Partner's certificate;
and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "Final Closing").
-------------
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a breach of or other
exception with respect to Article 2 hereof or has otherwise materially breached
this Contribution Agreement (any such Contributor, a "Non-Complying
-------------
Contributor"), in which case the Operating Partnership shall, in lieu of the
delivery with respect to such Contributor pursuant to clause (a) above, notify
the Closing Agent of such election and direct the Closing Agent to return such
Contributor's Closing Documents and Ancillary Agreements (as defined below) to
such Contributor. The election of the Operating
3
<PAGE>
Partnership to not acquire all or any portion of the Interests of a particular
Non-Complying Contributor shall not affect the obligations of any other
Contributor hereunder, including any other Non-Complying Contributor.
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be destroyed or damaged by fire or other casualty, then
this Contribution Agreement may, at the option of the Operating Partnership, be
terminated with respect to the Asset Entity, the Assets of which have been
destroyed or damaged. If, after the occurrence of any such casualty affecting
an Asset Entity's Assets, this Contribution Agreement is not so terminated
relative to such Asset Entity, the Operating Partnership may elect to (i)
purchase the given Contributors' Interests in such Asset Entity or Assets, as
the case may be, and (ii) direct such Contributors to pay or cause to be paid to
the Operating Partnership any sums collected under any policies of insurance
because of damage due to such casualty and otherwise assign to the Operating
Partnership all rights to collect such sums as may then be uncollected;
provided, however, that the Contributors shall not adjust or settle any
insurance claim without the Operating Partnership's prior written consent, not
to be unreasonably withheld or delayed. Under such circumstances, the
Consideration payable upon such purchase shall be reduced by the amount of any
deductibles under the applicable insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8, neither party shall have any
obligations under the Closing Documents or under any agreements or instruments
executed in connection with the transactions contemplated hereunder or
thereunder (such other agreements or instruments, collectively, "Ancillary
---------
Agreements"), this Contribution Agreement, the Closing Documents and the
- ----------
Ancillary Agreements shall be deemed null and void ab initio and the Closing
---------
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent in accordance with the previous paragraph.
1.5 Documents to be Delivered at Closing. At the Initial Closing, each
------------------------------------
Contributor shall, directly or through the attorney-in-fact appointed pursuant
to Article 4 hereof, execute, acknowledge where deemed desirable or necessary by
the Operating Partnership, and deliver to the Closing Agent, in addition to any
other documents mentioned elsewhere herein, the following:
(a) An Assignment of Interests (the "Assignment"), which assignment
----------
shall be in a form satisfactory to the Operating Partnership, shall contain a
warranty of title that such Contributor owns such Contributor's Interests free
and clear of all Encumbrances (as defined in Section 2.1 hereof), except, where
applicable, for the Permitted Encumbrances (as defined in Section 2.1 hereof)
and shall either (i) reaffirm the accuracy of all representations and warranties
and the satisfaction of all covenants made by such Contributor in Article II
hereof or (ii) if such reaffirmation cannot be made, identify those
4
<PAGE>
representations, warranties and covenants of Article II hereof (other than
Section 2.5 hereof) with respect to which circumstances have changed, represent
that such Contributor has used all reasonable efforts within its control to
prevent and remedy such breach, and reaffirm the accuracy of all other
representations and warranties and the satisfaction of all other covenants made
by such Contributor in Article II hereof.
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests, including, without limitation, deeds, assignments
of ground leases and space leases (as applicable), transfer tax and gains tax
returns and any other filings with any applicable governmental jurisdiction in
which the Operating Partnership is required to file its partnership
documentation or the recording of the Assignment is required.
1.6 Cessation of IPO. If at any time the Operating Partnership or the
----------------
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO (the date of such determination being referred to as the
"Cessation Date"), the Operating Partnership will so advise each Contributor in
- ---------------
writing and thereupon all parties hereto will be relieved of all obligations
under this Contribution Agreement, all Ancillary Agreements, and all Closing
Documents (except for obligations arising under Sections 1.7, 2.5 and 3.2
hereof).
1.7 Closing Costs. The Operating Partnership agrees to pay all of the
-------------
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to the exercise by the Operating
Partnership of its Contribution Right, including, without limitation, any
applicable transfer and sales taxes and any transfer fee due in connection with
the assumption of existing mortgage debt by the Operating Partnership.
1.8 Default. (a) If, after notifying the Contributors of a date for the
-------
Initial Closing, the Operating Partnership fails to close (including a failure
due to the IPO Closing not occurring), then the Operating Partnership will pay
to each Contributor the sum of $100.00 as liquidated and agreed-upon damages.
It would be difficult, if not impossible, to ascertain the actual measure of
each Contributor's damages in the event of the Operating Partnership's default
and the parties agree that $100.00 is a fair reflection of each Contributor's
damages in the event of the Operating Partnership's default.
(b) If any Contributor defaults with respect to its obligations under
this Contribution Agreement, the Operating Partnership shall be entitled to
exercise against each such Contributor any and all remedies provided at law or
in equity, including but not limited to, the right to specific performance. No
default by any Contributor hereunder shall in any way limit or affect the
obligations of any other Contributor hereunder.
1.9 Further Assurances. Each Contributor will, from time to time, execute
------------------
and deliver to the Operating Partnership all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Operating Partnership may reasonably request in order to assign, transfer
and convey such Contributor's Interests,
5
<PAGE>
including instruments or documents deemed necessary or desirable by the
Operating Partnership to effect and evidence the conveyance of such
Contributor's Interests in accordance with the terms of this Contribution
Agreement. The provisions of this Section 1.9 shall survive the Final Closing.
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
-----------------------------
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set forth in this Article II, which
representations and warranties (unless otherwise noted) are true as of the date
hereof. As a condition to the Operating Partnership's obligation to complete
the acquisition of any Contributor's Interests after the exercise of the
Contribution Right, such representations and warranties must continue to be true
in all material respects as of the date of the Initial Closing and as of the
date of the Final Closing.
2.1 Title to Interests. Each Contributor owns its Interests beneficially
------------------
and of record, free and clear of any claim, lien, pledge, voting agreement,
option, charge, security interest, mortgage, deed of trust, encumbrance, rights
of assignment, purchase rights or other rights of any nature whatsoever
(collectively, "Encumbrances"), except as disclosed as exceptions in the title
------------
report for real property owned or leased by the Asset Entity, dated on or after
the date the Property was acquired by the Asset Entity, provided such title
exceptions are satisfactory to the Operating Partnership in its sole discretion,
and except for Encumbrances pursuant to the governing document of the Asset
Entity, and except as set forth on Exhibit C attached hereto (any such
---------
encumbrance, a "Permitted Encumbrance"), and has full power and authority to
---------------------
convey free and clear of any Encumbrances (except, where applicable, the
Permitted Encumbrances), its Interests and, upon delivery of any Assignment by
such Contributor conveying its Interests and delivery of Consideration for such
Interests as herein provided, the Operating Partnership will acquire good and
valid title thereto, free and clear of any Encumbrance except Encumbrances
created in favor of the Operating Partnership by the transactions contemplated
hereby and, where applicable, the Permitted Encumbrances. No Contributor will
consent to join in or in any way effect the transfer of any Asset prior to the
Final Closing. At the Final Closing, if so requested, Contributors will execute
all documents necessary to enable a title insurance company (acceptable to the
Operating Partnership, in its sole discretion) to issue to the Operating
Partnership an ALTA Form B (1987 or later) Owner's Policy and such endorsements
as the Operating Partnership may reasonably request, insuring fee simple and/or
leasehold title to all real property and improvements comprising all or any part
of the Assets to the Operating Partnership; provided that each Contributor's
cost of complying with this requirement shall be limited to ten percent of the
Consideration to be received by such Contributor, which amount shall be deducted
from such Consideration at the Final Closing; and provided further that no
Contributor shall be required to execute any document that would have the effect
of releasing, waiving or
6
<PAGE>
subordinating any claim it or its affiliates may have against the Asset Entity.
Each Contributor has funded (or will fund before the same is past due) all
capital contributions and advances to the Asset Entity in which its Interest
represents an interest that are required to be funded or advanced prior to the
date hereof and the date of the Initial Closing and the Final Closing. There
are no agreements, instruments or understandings with respect to any of such
Contributor's Interests except as set forth in the partnership agreement of the
Asset Entity in which an Interest represents a limited partner or general
partner interest or as disclosed in writing to the Operating Partnership. Such
Contributor has no interest, either direct or indirect, in any of the Assets
except for (a) the Interests owned by it which are the subject of this
Contribution Agreement, (b) the Excluded Interests, where applicable, and (c)
direct or indirect interests in partnerships or other entities which are
themselves Contributors hereunder. Such Contributor covenants that no
Encumbrance on his Interests (except, where applicable, the Permitted
Encumbrances) will be in existence as of the date of the Final Closing. In
making the representations in this Section 2.1 regarding the absence of
Encumbrances, each Contributor may assume that the consents and waivers of
rights set forth in Section 6.10 hereof have been given by all partners of
partnerships in which such Contributor's Interest represent direct or indirect
interests. Notwithstanding anything to the contrary contained herein, to the
extent that the Contributor's Interests transferred hereunder constitute
interests in partnerships or other entities ("Continuing Partnerships") which
-----------------------
will continue in existence after the consummation of the transactions
contemplated hereby, such Interests are and will remain subject to the terms and
provisions of the partnership or other organizational agreements (as amended) of
the Continuing Partnerships, including without limitation, restrictions,
options, priorities and partnership loans provided for therein.
2.2 Authority. Such Contributor has full right, authority, power and
---------
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; and (b) to transfer,
convey, assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms.
Except for any breaches, violations or defaults which will be waived or cured
prior to the Initial Closing and all loans, indentures, creditor agreements or
other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing, the execution, delivery and performance
of this Contribution Agreement and each such agreement, document and instrument
by or on behalf of such Contributor: (a) does not and will not violate such
Contributor's partnership agreement, operating agreement, declaration of trust,
charter or bylaws, if applicable, or other organizational documentation; (b)
does not and will not violate any foreign, federal, state, local or other laws
applicable to or binding on such Contributor or require such Contributor to
obtain any approval, consent or waiver of, or make any filing with, any person
or authority (governmental or otherwise) that has not been obtained or made or
which does not remain in
7
<PAGE>
effect; and (c) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to a right of
termination of, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Contributor is a party or by which the property of such Contributor
is bound or affected, or result in the creation of any Encumbrance on any of the
property or assets of any partnership in which an Interest of such Contributor
represents an interest. In making the representations set forth in this Section
2.2, each Contributor may assume that the consents and waivers of rights set
forth in Section 6.10 hereof have been given by all partners of partnerships or
owners of voting interests, other than such Contributor, in entities in which
such Contributor's Interests represent direct or indirect interests.
2.3 Litigation. There is no litigation or proceeding, either judicial or
----------
administrative, pending or overtly threatened, affecting all or any portion of
such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such Contributor's ability to
enter into and perform all of its obligations under this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor represents that it has
---------------------------
not made any agreement with, and will not enter into any agreement with, and has
no obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Interests or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Interests. In making the representations set forth in this
Section 2.4, the Contributor may assume that the consents and waivers of rights
set forth in Section 6.10 hereof have been given by all partners, other than
such Contributor, of the Asset Entities.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
----------
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless the Operating Partnership for all costs and expenses incurred
by the Operating Partnership as a result of a breach of this representation.
The provisions of this Section 2.5 shall survive termination of this
Contribution Agreement.
2.6 Investment Representations and Warranties. Each Contributor who is
-----------------------------------------
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of the
agreement of
8
<PAGE>
limited partnership of the Operating Partnership (in substantially the form
attached hereto as Exhibit D) (the "Partnership Agreement"), including the terms
---------------------
of the power of attorney contained in Section 15.11 thereof, as the Partnership
Agreement may be amended from time in accordance with its terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such investment. If such
Contributor retained a person to represent or advise it with respect to the
investment in Units that may be made hereby then, at Contributor's request, such
Contributor shall, prior to or at the Initial Closing, (i) acknowledge in
writing such representation and (ii) cause such representative or advisor to
deliver a certificate to the Operating Partnership containing such
representations as are reasonably requested by the Operating Partnership.
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership.
(d) The Units to be issued to such Contributor will be acquired by
such Contributor for its own account (or if such Contributor is a trustee, for a
trust account) for investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Contributor's right
(subject to the terms of the Units) at all times to distribute the Units to
affiliates of such Contributor or to sell or otherwise dispose of all or any
part of its Units under an exemption from such registration available under the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
--------------
securities laws, and subject, nevertheless, to the disposition of its assets
being at all times within its control. Such
9
<PAGE>
Contributor was not formed for the specific purpose of acquiring an interest in
the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to
such Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws. Such Contributor hereby acknowledges that because of
the restrictions on transfer or assignment of such Units to be issued hereunder
which will be set forth in the Partnership Agreement and/or in a Registration
Rights Agreement (as defined in Section 5.1 hereof), such Contributor may have
to bear the economic risk of the investment commitment evidenced by this
Contribution Agreement and any Units acquired hereby for an indefinite period of
time, although (i) under the terms of the Partnership Agreement, as it will be
in effect at the time of the IPO, Units will be redeemable at the request of the
holder thereof at any time after the first anniversary of their issuance for
cash or (at the option of the REIT) for Common Shares of the REIT and (ii) the
holder of any such Common Shares issued upon a presentation of Units for
redemption will be afforded certain rights to have such Common Shares registered
for resale under the Securities Act or applicable state securities laws under
the Registration Rights Agreement as described more fully below.
(f) Contributor is an "accredited investor" as defined in Rule 501 of
Regulation D under the Securities Act.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within
--------------------- --------------
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 Covenant to Remedy Breaches. Each Contributor covenants to use all
---------------------------
reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of such Contributor hereunder, (b) to satisfy all
covenants of such Contributor hereunder and (c) to promptly cure any breach of a
representation, warranty or covenant of such Contributor hereunder upon its
learning of same.
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
-----------------------------------------------------
10
<PAGE>
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
---------
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by the Operating Partnership: (a) does not
and will not violate the Partnership Agreement; (b) does not and will not
violate any foreign, federal, state and local or other laws applicable to
Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Operating Partnership is a party
or by which the property of the Operating Partnership is bound or affected.
3.2 No Brokers. The Operating Partnership represents that it has not
----------
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
any Contributor to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
3.3 Litigation. There is no litigation or proceeding, either judicial or
----------
administrative, pending or overtly threatened, affecting the Operating
Partnership's ability to consummate the transactions contemplated hereby. The
Operating Partnership knows of no outstanding order, writ, injunction or decree
of any court, government, governmental entity or authority or arbitration which
would impair the Operating Partnership's ability to enter into and perform all
of its obligations under this Contribution Agreement.
ARTICLE IV. CLOSING ADJUSTMENTS
-------------------
11
<PAGE>
4.1 Prorations. The Consideration for the Asset shall be subject to
----------
prorations and credits as follows to be determined as of 12:01 A.M. on the date
of the Final Closing (the "Adjustment Time"), it being understood that the date
of the Final Closing shall be the first day of income and expense to the
Operating Partnership:
(a) Hotel Revenues. Except as set forth below, the Asset Entity
--------------
shall be entitled to all hotel room, food service, bar, beverage and liquor
revenues and charges and all revenues and charges from hotel room
operations, restaurant operations, hotel banquet and conference facility
operations, and other revenue of any kind attributable to the same for the
period prior to the Adjustment Time. The Operating Partnership shall be
entitled to all hotel room, food service, bar, beverage and liquor revenues
and charges and all revenues and charges from restaurant operations, hotel
banquet and conference facility operations, and all other revenue of any
kind attributable to any of the same for the period on and after the
Adjustment Time. Notwithstanding the foregoing, the Operating Partnership
shall be entitled to one-half (1/2) of the revenue from hotel rooms at the
Asset for the night preceding the date of the Final Closing. The Operating
Partnership shall not give the Asset Entity a credit at the date of the
Final Closing for any accounts receivable in connection with the Asset as
of the date of the Final Closing; but the Operating Partnership shall use
reasonable efforts to collect such accounts receivable and shall remit them
to the Asset Entity upon collection, less all reasonable costs of
collection; provided, however, any collection of account receivables shall
first be applied to those accruing prior to the date of the Final Closing.
The Asset Entity shall provide the Operating Partnership a credit against
the Consideration for the Asset in an amount equal to all guest reservation
deposits held by the hotel for hotel guests arriving or staying after check
out time for the Asset on the date of the Final Closing.
(b) Rents payable under Tenant Leases. Prepaid rent,
---------------------------------
nondelinquent rents, and tax reimbursements under any space leases
affecting the Asset (collectively, "Rents") collected subsequent to the
-----
date of the Final Closing and properly allocable to periods prior to the
date of the Final Closing, net of the Operating Partnership's costs of
collection, if any, shall be paid, promptly after receipt, to the Asset
Entity, but subject to all of the provisions of this Section hereof; and
any portion thereof properly allocable to periods subsequent to the date of
the Final Closing, if any, shall be paid to the Operating Partnership. Any
amount collected from a tenant shall first be applied to such tenant's
current monthly rental and then to past due amounts in the reverse order in
which they were due. Any advance rental payments or deposits paid by
tenants prior to the date of the Final Closing and applicable to the period
of time subsequent to the date of the Final Closing and any security
deposits or other amounts paid by tenants, together with any interest on
both thereof to the extent such interest is due to tenants, shall be
credited to the Operating Partnership on the date of the Final Closing.
Any invoices associated with tenant pass-throughs shall be attributable,
prior to the Adjustment Time, to the Asset Entity and, after the Adjustment
Time, to the
12
<PAGE>
Operating Partnership. No credit shall be given the Asset Entity for
accrued and unpaid Rent or any other non-current sums due from tenants
until said sums are paid.
(c) Minimum Working Capital; Cash and Cash Reserves. The Asset
-----------------------------------------------
shall, as of the Closing Time, have working capital equal to $100,000
("Minimum Working Capital"). To the extent all petty cash funds at the
Asset and all cash in any operating accounts for the Asset exceed the
amount required to fund Minimum Working Capital, the Operating Partnership
shall give the Asset Entity a credit on the date of the Final Closing. To
the extent such cash is insufficient to fund Minimum Working Capital, the
deficiency shall be deducted from the consideration payable to Contributor
in accordance with Exhibit A. Any balances remaining in any furniture,
fixtures and equipment reserve accounts shall be transferred to the
Operating Partnership as a part of the Asset. The Operating Partnership
and the Asset Entity shall make mutually satisfactory arrangements for
counting such cash and determining the balances in the operating accounts
as of the Adjustment Time.
(d) Trade Payables. Trade payables shall mean (for all purposes)
--------------
under this Contribution Agreement, open accounts payable to trade vendors
or suppliers of the Asset's hotel, restaurant, bar or similar facilities.
The Asset Entity agrees to give the Operating Partnership a credit on the
date of the Final Closing for all trade payables from the Asset which have
accrued on or prior to the Adjustment Time, and the Operating Partnership
shall be obligated to pay such payables to the extent it has received a
credit from the Asset Entity on the date of the Final Closing. The
Operating Partnership agrees to pay all trade payables from the Asset which
have accrued after the Adjustment Time and shall and hereby does indemnify
and hold the Asset Entity harmless from payment of the same. The
indemnities contained or provided for in this section survive the date of
the Final Closing.
(e) Banquet and Event Deposits. The Operating Partnership shall
--------------------------
receive and be entitled to a credit against the Consideration for all
prepaid deposits for banquets and other functions that are scheduled to
take place at the Asset on or after the date of the Final Closing.
(f) Service Contracts and Equipment Leases. Any amounts prepaid
--------------------------------------
or payable under any Service Contracts or Equipment Leases which the
Operating Partnership has elected to assume shall be prorated at the date
of the Final Closing as of the date of the Final Closing with the Asset
Entity obligated for all sums accrued prior to the Adjustment Time and the
Operating Partnership obligated for all sums accrued after the Adjustment
Time.
(g) Sales Tax. The Operating Partnership shall receive a credit
---------
for any and all sales, occupancy, use or other taxes due in connection with
the operation of the Asset which have accrued prior to the date of the
Final Closing and shall indemnify the Operating Partnership for all such
taxes to the extent the Operating
13
<PAGE>
Partnership has not received such credit. The Operating Partnership shall
be responsible to pay all such taxes to the extent it has received a credit
and shall indemnify the Asset Entity for such taxes. The indemnifications
set forth herein shall survive the date of the Final Closing.
(h) Taxes. The Operating Partnership shall receive a credit for
-----
any accrued but unpaid real estate taxes imposed in respect of the Asset
for the portion of the current year which has elapsed prior to the date of
the Final Closing (and to the extent unpaid, for prior years). If the
amount of any such taxes have not been determined as of the date of the
Final Closing, such credit shall be based on the most recent ascertainable
taxes and shall be reprorated upon issuance of the final tax bill. The
Asset Entity shall also give the Operating Partnership a credit for any
special assessments which are levied or charged against the Asset prior to
date of the Final Closing, whether or not then due and payable.
(i) Utilities. Utilities and fuel, including, without
---------
limitation, steam, water, electricity, gas and oil, shall be prorated as of
the date of the Final Closing. The Asset Entity shall cause the meters, if
any, for utilities to be read the day on which the Final Closing occurs and
to pay the bills rendered on the basis of such readings. If any such meter
reading for any utility is not available, then adjustment therefor shall be
made on the basis of the most recently issued bills therefor which are
based on meter readings no earlier than thirty (30) days prior to the date
of the Final Closing; and such adjustment shall be reprorated when the next
utility bills are received.
(j) Employee Expenses. Wages, benefit payments, vacation pay (or
-----------------
the value of any time accrued with respect thereto), and any other
compensation or benefits payable to all persons currently employed for work
in or in connection with the Asset and its operation (collectively,
"Employees") shall be prorated as of the date of the Final Closing; the
Operating Partnership shall not be required to assume any obligation with
respect to any employee benefits that were incurred prior to the date of
the Final Closing and for which the Operating Partnership did not receive a
credit therefor; the Asset Entity shall indemnify the Operating Partnership
against any claim in connection therewith that occurs before the date of
the Final Closing and the Operating Partnership shall indemnify the Asset
Entity against any claim in connection therewith that occurs on or after
the date of the Final Closing. The indemnity provided herein shall survive
the date of the Final Closing.
(k) Ground Lease Rents. Prepaid rent, nondelinquent rents,
------------------
delinquent rents, tax reimbursements, and other fees and costs under any
ground, or other leases, or parking agreements to which the Asset is
subject (collectively, "Ground Rents") shall be adjusted and prorated as of
------------
the date of the Final Closing.
14
<PAGE>
(l) Condominium Charges. Assessments and capital assessments,
-------------------
including any advance payments made by the Asset Entity but only to the
extent the advance payments are attributable to the time period after the
date of the Final Closing, under any declaration of condominium to which
the Asset is subject (collectively, "Assessments") shall be adjusted and
prorated as of the date of the Final Closing.
(m) Other Expenses. Other prepaid expenses to which the Asset is
--------------
reasonably subject shall be adjusted and prorated as of the date of the Final
Closing.
At least five (5) days prior to the date of the Final Closing, the Asset
Entity shall deliver to the Operating Partnership copies of all information and
records necessary to support the prorations hereunder. In the event any
prorations made pursuant hereto shall prove incorrect for any reason whatsoever,
either party shall be entitled to an adjustment to correct the same.
4.2 Accounts Receivable. The Asset Entity shall retain all accounts
-------------------
receivable and other income items which are attributable to periods prior to the
date of the Final Closing. The Asset Entity shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the Asset Entity. Except for sums actually received by the Operating
Partnership pursuant to the immediately preceding sentence, the Operating
Partnership shall assume no obligation to collect or enforce the payment of any
amounts that may be due to the Asset Entity, except that the Operating
Partnership shall render reasonable assistance, at no expense to the Operating
Partnership, to the Asset Entity after the Final Closing in the event the Asset
Entity proceeds against any third-party to collect any accounts receivable or
other income items due the Asset Entity.
4.3 Security Deposits. An amount equal to all tenant security deposits
-----------------
and all other deposits for advance reservations, banquets or future services or
made in connection with the space leases or the guest bookings and interest
thereon, if any, and any other amounts due with respect to such deposits shall
be paid over to the Operating Partnership at the Final Closing.
4.4 Timing of Calculations; Cooperation. Each Asset Entity and/or
-----------------------------------
Transferor Entity and the Operating Partnership agree to use reasonable efforts
to reconcile, prorate, and adjust all of the foregoing items upon the Final
Closing and, in all events, such reconciliation, proration and adjustment shall
be completed within ninety (90) days after the date of the Final Closing. In
the event any adjustments or prorations made pursuant to this Contribution
Agreement are, subsequent to Final Closing, found to be erroneous, then either
party hereto
15
<PAGE>
who is entitled to additional amounts shall invoice the other party for such
additional amounts as may be owing, and such amounts shall be paid promptly by
the other party upon receipt of invoice. Such invoice shall be accompanied by
reasonable substantiating evidence.
4.5 Allocation of Adjustments. All adjustments contemplated by this
-------------------------
Article IV shall, to the extent practicable, be made by adjusting (either up or
down) the cash portion amount of the Consideration and/or the number of Units
issued to each Contributor by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to
the Asset Entity in which the Contributor owns an interest. The amount of an
Asset Entity's adjustments calculated pursuant to this Article IV allocated to
each Contributor shall be that portion equal to that Contributor's pro rata
equity interest in each Asset Entity.
ARTICLE V. POWER OF ATTORNEY
-----------------
5.1 Grant of Power of Attorney. Each Contributor does hereby irrevocably
--------------------------
appoint Jonathan E. Bortz, Michael Barnello, and the Operating Partnership, and
each of them individually and any successor thereof from time to time (such
persons or the Operating Partnership or any such successor of any of them acting
in his, her or its capacity as attorney-in-fact pursuant hereto, the "Attorney-
--------
in-Fact") as the true and lawful attorney-in-fact and agent of such Contributor,
- -------
to act in the name, place and stead of such Contributor:
(a) To enter into a registration rights agreement a form of which is
attached hereto as Exhibit E (the "Registration Rights Agreement").
-----------------------------
(b) To enter into a lock-up agreement (the "Lock-up Agreement") which
-----------------
provides that the Contributors will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of (or announce any offer, sale, offer of sale, contract
of sale, grant of any option to purchase or other sale or disposition of)
any REIT Common Shares or any securities convertible into or exchangeable
for or substantially similar to REIT Common Shares, for a period of one
year from the IPO Closing without the prior written consent of the managing
underwriter named in the Lock-up Agreement.
(c) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the
execution of Closing Documents, Ancillary Agreements, the Partnership
Agreement, any other documents relating to the acquisition by the Operating
Partnership of such Contributor's Interests, and any consents contemplated
by Section 6.10 hereof) and, in general, to do all things and to take all
action which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transaction
contemplated by this
16
<PAGE>
Contribution Agreement, the Ancillary Agreements, if any, and the Closing
Documents as fully as could such Contributor if personally present and
acting.
The Power of Attorney granted by each Contributor pursuant to this Article
V and all authority conferred hereby is granted and conferred subject to and in
consideration of the interests of the Operating Partnership, the REIT and the
other Contributors and is for the purpose of completing the transactions
contemplated by this Contribution Agreement. The Power of Attorney shall
terminate upon termination of this Contribution Agreement. The Power of
Attorney of each Contributor granted hereby and all authority conferred hereby
is coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of such Contributor or by operation of law, whether by the
death, disability, incapacity or liquidation of such Contributor or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which such Contributor is acting as a
fiduciary or fiduciaries), and if, after the execution hereof, such Contributor
shall die or become disabled or incapacitated or is liquidated, or if any other
such event or events shall occur before the completion of the transactions
contemplated by this Contribution Agreement, the Attorney-in-Fact shall
nevertheless be authorized and directed to complete all such transactions as if
such death, disability, incapacity, liquidation or other event or events had not
occurred and regardless of notice thereof. Each Contributor acknowledges that
Jonathan E. Bortz, Michael Barnello and the Operating Partnership have, and any
successor thereof acting as Attorney-in-Fact may have an economic interest in
the transactions contemplated by this Contribution Agreement. Each Contributor
agrees that, at the request of the Operating Partnership, it will promptly
execute a separate power of attorney on the same terms set forth in this Article
V, such execution to be witnessed and notarized.
5.2 Limitation on Liability. It is understood that the Attorney-in-Fact
-----------------------
assumes no responsibility or liability to any person by virtue of the Power of
Attorney granted by each Contributor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
formation of the REIT, the acquisitions of the Interests by the Operating
Partnership, the Registration Statement, the Prospectus or any Preliminary
Prospectus, nor for any aspect of the offering of the REIT's Common Shares, and
it shall not be liable for any error of judgment or for any act done or omitted
or for any mistake of fact or law except for its own gross negligence or bad
faith. Each Contributor agrees that the Attorney-in-Fact may consult with
counsel of its own choice (who may be counsel for the Operating Partnership or
the REIT) and it shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith and in accordance
with the opinion of such counsel. It is understood that the Attorney-in-Fact
may, without breaching any express or implied obligation to the Contributor
hereunder, release, amend or modify any other Power of Attorney granted by any
other Contributor hereunder or by any other person under any related agreement.
The provisions of this Section 5.2 shall not limit or otherwise affect the
obligations of the Operating Partnership (acting for itself and not as Attorney-
in-Fact) under the other Articles of this Contribution Agreement.
17
<PAGE>
5.3 Ratification; Third Party Reliance. Each Contributor does hereby
----------------------------------
ratify and confirm all that the Attorney-in-Fact shall lawfully do or cause to
be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.
ARTICLE VI. MISCELLANEOUS
-------------
6.1 Amendment. Any amendment hereto shall be effective only against those
---------
parties hereto who have acknowledged in writing their consent to such amendment.
No waiver of any provisions of this Contribution Agreement shall be valid unless
in writing and signed by the party against whom enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This Contribution
----------------------------------------------
Agreement and all Ancillary Agreements, including the Lease Agreement to be
entered into between the Operating Partnership and Beachside Hospitality, Inc.,
(a) constitute the entire agreement and supersede conflicting provisions set
forth in all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, (b) may be executed
in several counterparts, each of which will be deemed an original and all of
which shall constitute one and the same instrument and (c) shall be governed in
all respects, including validity, interpretation and effect, by the laws of the
State of New York without giving effect to the conflict of law provisions
thereof.
6.3 Assignability. This Contribution Agreement shall be binding upon, and
-------------
shall be enforceable by and inure to the benefit of, the parties hereto and
their respective heirs, legal representatives, successors and assigns; provided,
however, that this Contribution Agreement may not be assigned (except by
operation of law) by any party without the prior written consent of the other
parties, and any attempted assignment without such consent shall be void and of
no effect.
6.4 Titles. The titles and captions of the Articles, Sections and
------
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution Agreement
-----------------------
is intended, nor shall it be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any customer, affiliate,
stockholder, partner, director, officer or employee of any party hereto or any
other person or entity, provided, however, that Sections 5.2, 5.3, 6.3 and 6.10
of this Contribution Agreement shall be enforceable by and shall inure to the
benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution Agreement, or the
------------
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the
18
<PAGE>
remainder of this Contribution Agreement and application of such provision to
other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Contribution Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision and to
execute any amendment, consent or agreement deemed necessary or desirable by the
Operating Partnership to effect such replacement.
6.7 Equitable Remedies. The parties hereto agree that irreparable damage
------------------
would occur in the event that any of the provisions of this Contribution
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Contribution
Agreement and to enforce specifically the terms and provisions hereof in any
federal or state court located in New York (as to which the parties agree to
submit to jurisdiction for the purposes of such action), this being in addition
to any other remedy to which they are entitled under this Contribution Agreement
or otherwise at law or in equity.
6.8 Attorneys' Fees. In connection with any litigation or a court
---------------
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover all costs incurred, including reasonable attorneys'
fees and legal assistants' fees and costs whether incurred prior to trial, at
trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given under this
-------
Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
LaSalle Hotel Operating Partnership, L.P.
220 East 42nd Street
New York, New York 10017
Attention: Michael Barnello
Phone: 212-661-6161
Telecopy: 212-687-8170
with copies to:
Brown & Wood llp
One World Trade Center
19
<PAGE>
New York, New York 10048
Attention: Michael F. Taylor
Phone: 212-839-5300
Telecopy: 212-839-5599
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.
----------------------------------------------------------------
(a) Each Contributor acknowledges that the agreements contained herein
and the transactions contemplated hereby and any actions taken in contemplation
of the transactions contemplated hereby may conflict with, and may not have been
contemplated by, the partnership agreement of one or more partnerships in which
one or more of such Contributor's Interests represents a direct or indirect
interest or another agreement among one or more holders of such Interests or one
or more of the partners of any such partnership. With respect to each
partnership in which an Interest of a Contributor represents a direct or
indirect interest, each Contributor expressly gives all Consents (and any
consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "Conveyance Action" means, with respect to any
-----------------
partnership having a direct or indirect ownership interest in any Asset, (i) the
conveyance or agreement to convey by a partner thereof or by any holder of an
indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any such partner or holder of any action necessary or desirable to
facilitate any of the foregoing, including, without limitation, the following
(provided that the same are taken in furtherance of the foregoing): any sale or
distribution to, or merger with, any person of a direct or indirect interest in
such partnership, the entering into any agreement with any person that grants to
such person the right to purchase a direct or indirect interest in such
partnership, and the giving of the Consents and Waivers contained in this
Section 6.10 or consents or waivers similar thereto in form or purpose. As used
herein, the term "Consents" means, with respect to any such partnership, any
--------
consent necessary or desirable under the partnership agreement of such
partnership or any other agreement among all or any of the holders of interests
therein or any other agreement relating thereto or referred to therein (i) to
permit any and all Conveyance Actions relating to such partnership or to amend
such partnership agreement and/or other agreements so that no provision thereof
prohibits, restricts, impairs or interferes with any Conveyance Action (such
amendments to
20
<PAGE>
include, without limitation, the deletion of provisions which cause a default
under such agreement if interests therein are transferred for cash), (ii) to
admit the Operating Partnership as a substitute limited partner or general
partner of such partnership upon the Operating Partnership's acquisition of a
limited or general partnership interest therein, respectively, and to adopt such
amendment as is necessary or desirable to effect such admission, (iii) to adopt
any amendment as may be deemed desirable by the Operating Partnership, either
simultaneously with or immediately prior to the acquisition of any interest
therein, (iv) to continue such partnership following the transfer of interest
therein to the Operating Partnership, and (v) to merge such partnership with and
into the Operating Partnership. As used herein, the term "Waivers" means, with
-------
respect to a partnership of which an Interest of a Contributor represents a
direct or indirect interest, the waiving of any and all rights that such
Contributor may have with respect to, and (to the extent possible) that any
other person may have with respect to, or that may accrue to such Contributor or
other person upon the occurrence of, a Conveyance Action relating to such
partnership, including, but not limited to, the following rights: rights of
notice, rights to response periods, rights to purchase the direct or indirect
interests of another partner in such partnership or to sell such Contributor's
or other person's direct or indirect interest therein to another partner, rights
to sell such Contributor's or other person's direct or indirect interest therein
at a price other than as provided herein, or rights to prohibit, limit,
invalidate, otherwise restrict or impair any such Conveyance Action or to cause
a termination or dissolution of such partnership because of such Conveyance
Action. Each Contributor further covenants that such Contributor will take no
action to enjoin, or seek damages resulting from, any Conveyance Action by any
holder of a direct or indirect interest in a partnership in which an Interest of
such Contributor represents a direct or indirect interest. The Waivers and
Consents contained in this Section 6.10 shall terminate upon the termination of
this Contribution Agreement, except as to transactions completed hereunder prior
to termination.
(b) Each Contributor by its execution hereof (i) with respect to each
Asset Entity in which an Interest owned by Contributor represents a direct or
indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree; and (ii) agrees that such Contributor's Consideration may be reduced to
reflect such direct transfer of assets and the consequent receipt of Units
directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent as is
necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner
21
<PAGE>
therein and/or a substitute general partner therein if the Operating Partnership
by the exercise of its Contribution Right acquires a limited partnership
interest or a general partnership interest in such partnership, respectively,
(ii) to redeem the interest of any other partner therein who has not agreed to
become a party to this Contribution Agreement or a similar contribution
agreement with the Operating Partnership, (iii) to transfer to all partners
thereof, including any partner who has not agreed to become a party to this
Contribution Agreement, Units and/or cash (provided that such Contributor
receives as a result of all such distributions and the direct payment of
consideration hereunder, an amount of cash and/or Units that is in conformity
with the Consideration of such Contributor provided for herein), and thereafter,
at the Operating Partnership's option, to dissolve, and (iv) any such other
amendment as the Operating Partnership may deem desirable, provided that such
amendment occurs simultaneously with or immediately prior to the acquisition of
the applicable partnership interest and, provided further, that such amendment
will not result in any increased liability on the part of any Contributor
hereunder or under the applicable partnership agreement. The Attorney-in-Fact
may on behalf of each Contributor execute such consents, amendments or other
instruments as it deems necessary or desirable in connection with the foregoing.
6.11 Confidentiality. All press releases or other public communications of
---------------
any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
6.12 Computation of Time. Any time period provided for herein which shall
-------------------
end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next
full business day. All times are Eastern Time.
6.13 Survival. It is the express intention and agreement of the parties
--------
hereto that the representations, warranties and covenants of each Contributor
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.14 Time of the Essence. Time is of the essence with respect to all
-------------------
obligations of Contributor under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Contribution Agreement, or caused the Contribution Agreement to be duly
executed on its behalf, as of the date first written above.
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES
Its General Partner
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
By:_______________________________
Name:
Title:
23
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of January 30, 1998,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
Beachside Key West Limited Partnership
By: Beachside Hospitality, Inc.
General Partner
By: /s/ David L. Durbin
---------------------------
Name: David L Durbin
Title: President
Address of Contributor:
1420 Beverly Road, #330
McLean, VA 22101
Telephone/Facsimile Numbers:
Phone: 703-827-0404
Fax: 703-734-3853
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
24
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Contributor Interest Consideration
- ---------------------------- --------------------- -------------------------------
<S> <C> <C>
Beachside Key West Limited 1.8662% limited See attached valuation formula.
Partnership partnership interest
in the Asset Entity
</TABLE>
25
<PAGE>
EXHIBIT B
---------
EXCLUDED INTERESTS
------------------
26
<PAGE>
EXHIBIT C
---------
PERMITTED ENCUMBRANCES
----------------------
27
<PAGE>
EXHIBIT D
---------
OPERATING PARTNERSHIP AGREEMENT
28
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
29
<PAGE>
EXHIBIT F
---------
ESCROW AGREEMENT
30
<PAGE>
EXHIBIT 10.12
[Radisson]
CONTRIBUTION AGREEMENT
BY AND AMONG
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of _____________, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES............ 2
1.1 Acquisition of Interests........................ 2
1.2 Term of Agreement............................... 2
1.3 Consideration................................... 2
1.4 Closing; Condition to Obligations............... 2
1.5 Documents to be Delivered at Closing............ 4
1.6 Cessation of IPO................................ 5
1.7 Closing Costs................................... 5
1.8 Default......................................... 5
1.9 Further Assurances.............................. 5
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS........................ 6
2.1 Title to Interests.............................. 6
2.2 Authority....................................... 7
2.3 Litigation...................................... 8
2.4 No Other Agreements to Sell..................... 8
2.5 No Brokers...................................... 8
2.6 Investment Representations and Warranties....... 8
2.7 FIRPTA Representation........................... 10
2.8 Covenant to Remedy Breaches..................... 10
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP............................. 10
3.1 Authority....................................... 10
3.2 No Brokers...................................... 11
ARTICLE IV. CLOSING ADJUSTMENTS.................................. 11
4.1 Prorations...................................... 11
4.2 Accounts Receivable............................. 14
4.3 Security Deposits............................... 14
4.4 Timing of Calculations; Cooperation............. 15
4.5 Allocation of Adjustments....................... 15
ARTICLE V. POWER OF ATTORNEY.................................... 15
5.1 Grant of Power of Attorney...................... 15
5.2 Limitation on Liability......................... 16
5.3 Ratification; Third Party Reliance.............. 17
ARTICLE VI. MISCELLANEOUS........................................ 17
6.1 Amendment....................................... 17
i
<PAGE>
6.2 Entire Agreement; Counterparts; Applicable Law.................... 17
6.3 Assignability..................................................... 17
6.4 Titles............................................................ 17
6.5 Third Party Beneficiary........................................... 17
6.6 Severability...................................................... 17
6.7 Equitable Remedies................................................ 18
6.8 Attorneys' Fees................................................... 18
6.9 Notices........................................................... 18
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.. 19
6.11 Confidentiality................................................... 21
6.12 Computation of Time............................................... 21
6.13 Survival.......................................................... 21
6.14 Time of the Essence............................................... 21
EXHIBIT A: Excluded Interests
EXHIBIT B: Consideration
EXHIBIT C: Permitted Encumbrances
EXHIBIT D: Operating Partnership Agreement
EXHIBIT E: Registration Rights Agreement
EXHIBIT F: Escrow Agreement
ii
<PAGE>
CONTRIBUTION AGREEMENT
----------------------
This Contribution Agreement (the "Contribution Agreement") is executed as
----------------------
of the _____ day of ______________, 1998 by LaSalle Hotel Operating Partnership,
L.P. (the "Operating Partnership"), a Delaware limited partnership, and the
---------------------
Contributors whose names are set forth in Exhibit A hereto (each, a
---------
"Contributor" and, collectively, the "Contributors").
----------- ------------
WHEREAS, in connection with the consolidation of its hotel acquisition and
ownership business, LaSalle Partners intends to form a Maryland real estate
investment trust (the "REIT") that will be the sole general partner and a
----
limited partner of the Operating Partnership and to effect an initial public
offering (the "IPO") of the REIT's common shares of beneficial interest ("Common
--- ------
Shares");
- ------
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in the following ten hotel properties:
Radisson Hotel South and Plaza Tower, Bloomington, Minnesota; Le Meridien New
Orleans Hotel, New Orleans, Louisiana; Le Meridien Dallas Hotel, Dallas, Texas;
The Omaha Marriott Hotel, Omaha, Nebraska; the LaGuardia Marriott Hotel, New
York, New York; Marriott Seaview Resort, Galloway Township, New Jersey; The
Camberley Plaza Sabal Park, Tampa, Florida; Holiday Inn Plaza Park, Visalia,
California; Holiday Inn Beachside, Key West, Florida; and Le Montrose Suite
Hotel de Gran Luxe, West Hollywood, California;
WHEREAS, it is further understood that the Operating Partnership may
acquire, either before or after the IPO, interests in additional hotel
properties located within or outside the United States;
WHEREAS, each Contributor owns partnership interests in LaSalle LRP
Bloomington Limited Partnership, a Delaware limited partnership (the "Asset
-----
Entity") which owns fee and leasehold interests in the land and improvements
- ------
known as Radisson Hotel South and Plaza Tower (the "Property");
--------
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the aforementioned partnership
interests owned by such Contributor and (except for the Excluded Interests set
forth in Exhibit B) any other direct or indirect interests such Contributor may
---------
have, whether now owned or hereinafter acquired, in the Asset Entity or the
Property (the Property and all personal property related thereto or to the
operation thereof is hereinafter referred to as an "Asset" and each such direct
-----
or indirect interest (except for the Excluded Interests) of a Contributor in
such Asset Entity or in such Asset, is referred to individually as an "Interest"
--------
and collectively, as such Contributor's "Interests");
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
<PAGE>
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
-----------------------------------------------------
1.1 Acquisition of Interests. At the Final Closing (defined below),
------------------------
each Contributor shall, subject to Section 1.4 hereof, contribute, transfer,
assign, and convey to the Operating Partnership and the Operating Partnership
shall (i) acquire and accept from such Contributor, all right, title and
interest of such Contributor in such Contributor's Interests, free and clear of
all Encumbrances (as defined in Section 2.1 hereof) except Permitted
Encumbrances (as defined in Section 2.1 hereof), and (ii) deliver to such
Contributor such Contributor's Consideration (defined below), both in accordance
with this Contribution Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does not
-----------------
occur by December 31, 1998 (the "Termination Date"), this Contribution Agreement
----------------
shall be deemed terminated and shall be of no further force and effect and
neither the Operating Partnership nor the Contributors shall have any further
obligations hereunder.
1.3 Consideration. The full consideration for each Contributor's
-------------
Interests (such consideration with respect to such Contributor is hereinafter
referred to as such Contributor's "Consideration") shall be an amount payable in
-------------
cash and/or a number of Units (as hereinafter defined) as set forth in Exhibit
A, subject to the terms and provisions of Article IV hereof providing for
adjustments to each Contributor's Consideration based on closing adjustments; it
being understood that it is the intention of the parties to this Contribution
Agreement that any Minimum Working Capital (as defined in Section 4.1(c) hereof)
and any balances remaining in any furniture, fixtures and equipment reserve
accounts are to be transferred to the Operating Partnership as a part of the
Asset; it being further understood that the Operating Partnership, following its
acquisition of the Interests, intends to apply a portion of the proceeds from
the IPO to satisfy in full the outstanding mortgage indebtedness provided by
Heller Financial with respect to the Property. As used herein, the term "Units"
-----
means units of limited partnership interest in the Operating Partnership.
1.4 Closing; Condition to Obligations. In connection with its
---------------------------------
acquisition of the Contributors' Interests, the Operating Partnership will
notify the Contributors of a closing date, which date will be no earlier than
five (5) business days after such notification and no later than December 15,
1998 (fifteen (15) business days prior to the Termination Date), for the initial
closing (the "Initial Closing") of the acquisition contemplated by this
---------------
Contribution Agreement. At or before such Initial Closing, which shall be held
at the offices of Brown & Wood llp, One World Trade Center, New York, New York
10048 or such other place as is determined by the Operating Partnership in its
sole discretion at a time specified by the Operating Partnership in its sole
discretion, the Operating Partnership and the Contributors will execute all
closing documents (the "Closing Documents") required by the Operating
-----------------
Partnership in accordance with Section 1.5 hereof and deposit the same in escrow
with Brown & Wood llp, New York, New York, pursuant to an escrow agreement in
substantially the form of Exhibit F hereto, as escrow agent of the Operating
Partnership (the "Closing Agent").
-------------
2
<PAGE>
The transactions contemplated by this Contribution Agreement and by
the Closing Documents executed and deposited in connection with such exercise
will be consummated at the Final Closing (as hereinafter defined) only if (i)
the closing of the IPO (the "IPO Closing") is consummated by the earlier of (a)
-----------
fifteen (15) business days after the date of the Initial Closing and (b) the
Termination Date and (ii) the Total Company Enterprise Value (as defined in
Exhibit A) is equal to or greater than $405,000,000. If the IPO Closing occurs
by such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing, cause to be delivered to the Closing Agent with
respect to each Contributor (i) the cash portion of such
Contributor's Consideration, if any (such cash portion, the
"Cash Portion"), and (ii) if applicable, a certificate of
------------
the General Partner of the Operating Partnership certifying
that such Contributor has been or will be, effective upon
the Final Closing (as hereinafter defined), admitted as a
limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will
indicate that such Contributor is the holder of the number
of Units which are called for pursuant to the Consideration
as adjusted pursuant to Article IV hereof;
(b) upon receipt of the Consideration set forth in clause (a)
above, the Closing Agent will release the Closing Documents
to the Operating Partnership and deliver to the Contributor
the Cash Portion, if any, and, if requested by the
Contributor, a copy of such General Partner's certificate;
and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "Final Closing").
-------------
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a breach of or other
exception with respect to Article 2 hereof or has otherwise materially breached
this Contribution Agreement (any such Contributor, a "Non-Complying
-------------
Contributor"), in which case the Operating Partnership shall, in lieu of the
delivery with respect to such Contributor pursuant to clause (a) above, notify
the Closing Agent of such election and direct the Closing Agent to return such
Contributor's Closing Documents and Ancillary Agreements (as defined below) to
such Contributor. The election of the Operating Partnership to not acquire all
or any portion of the Interests of a particular Non-Complying Contributor shall
not affect the obligations of any other Contributor hereunder, including any
other Non-Complying Contributor.
3
<PAGE>
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be destroyed or damaged by fire or other casualty, then
this Contribution Agreement may, at the option of the Operating Partnership, be
terminated with respect to the Asset Entity, the Assets of which have been
destroyed or damaged. If, after the occurrence of any such casualty affecting
an Asset Entity's Assets, this Contribution Agreement is not so terminated
relative to such Asset Entity, the Operating Partnership may elect to (i)
purchase the given Contributors' Interests in such Asset Entity or Assets, as
the case may be, and (ii) direct such Contributors to pay or cause to be paid to
the Operating Partnership any sums collected under any policies of insurance
because of damage due to such casualty and otherwise assign to the Operating
Partnership all rights to collect such sums as may then be uncollected;
provided, however, that the Contributors shall not adjust or settle any
insurance claim without the Operating Partnership's prior written consent, not
to be unreasonably withheld or delayed. Under such circumstances, the
Consideration payable upon such purchase shall be reduced by the amount of any
deductibles under the applicable insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8, neither party shall have any
obligations under the Closing Documents or under any agreements or instruments
executed in connection with the transactions contemplated hereunder or
thereunder (such other agreements or instruments, collectively, "Ancillary
---------
Agreements"), this Contribution Agreement, the Closing Documents and the
- ----------
Ancillary Agreements shall be deemed null and void ab initio and the Closing
---------
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent in accordance with the previous paragraph.
1.5 Documents to be Delivered at Closing. At the Initial Closing, each
------------------------------------
Contributor shall, directly or through the attorney-in-fact appointed pursuant
to Article 4 hereof, execute, acknowledge where deemed desirable or necessary by
the Operating Partnership, and deliver to the Closing Agent, in addition to any
other documents mentioned elsewhere herein, the following:
(a) An Assignment of Interests (the "Assignment"), which assignment
----------
shall be in a form satisfactory to the Operating Partnership, shall contain a
warranty of title that such Contributor owns such Contributor's Interests free
and clear of all Encumbrances (as defined in Section 2.1 hereof), except, where
applicable, for the Permitted Encumbrances (as defined in Section 2.1 hereof)
and shall either (i) reaffirm the accuracy of all representations and warranties
and the satisfaction of all covenants made by such Contributor in Article II
hereof or (ii) if such reaffirmation cannot be made, identify those
representations, warranties and covenants of Article II hereof (other than
Section 2.5 hereof) with respect to which circumstances have changed, represent
that such Contributor has used all reasonable efforts within its control to
prevent and remedy such breach, and reaffirm the accuracy of all other
representations and warranties and the satisfaction of all other covenants made
by such Contributor in Article II hereof.
4
<PAGE>
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests and effectuate the transactions contemplated
hereby, including, without limitation, deeds, assignments of ground leases and
space leases (as applicable), transfer tax and gains tax returns and any other
filings with any applicable governmental jurisdiction in which the Operating
Partnership is required to file its partnership documentation or the recording
of the Assignment is required.
1.6 Cessation of IPO. If at any time the Operating Partnership or the
----------------
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO (the date of such determination being referred to as the
"Cessation Date"), the Operating Partnership will so advise each Contributor in
- ---------------
writing and thereupon all parties hereto will be relieved of all obligations
under this Contribution Agreement, all Ancillary Agreements, and all Closing
Documents (except for obligations arising under Sections 1.7, 2.5 and 3.2
hereof).
1.7 Closing Costs. The Operating Partnership agrees to pay all of the
-------------
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to this Agreement, including, without
limitation, any applicable transfer and sales taxes and any transfer fee due in
connection with the assumption of existing mortgage debt by the Operating
Partnership.
1.8 Default. (a) If, after notifying the Contributors of a date for the
-------
Initial Closing, the Operating Partnership fails to close (including a failure
due to the IPO Closing not occurring), then the Operating Partnership will pay
to each Contributor the sum of $100.00 as liquidated and agreed-upon damages.
It would be difficult, if not impossible, to ascertain the actual measure of
each Contributor's damages in the event of the Operating Partnership's default
and the parties agree that $100.00 is a fair reflection of each Contributor's
damages in the event of the Operating Partnership's default.
(b) If any Contributor defaults with respect to its obligations under
this Contribution Agreement, the Operating Partnership shall be entitled to
exercise against each such Contributor any and all remedies provided at law or
in equity, including but not limited to, the right to specific performance. No
default by any Contributor hereunder shall in any way limit or affect the
obligations of any other Contributor hereunder.
1.9 Further Assurances. Each Contributor will, from time to time, execute
------------------
and deliver to the Operating Partnership all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Operating Partnership may reasonably request in order to effect the
transactions contemplated by this Contribution Agreement, including instruments
or documents deemed necessary or desirable by the Operating Partnership to
effect and evidence the conveyance of such Contributor's Interests in accordance
with the terms of this Contribution Agreement. The provisions of this Section
1.9 shall survive the Final Closing.
5
<PAGE>
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
-----------------------------
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set forth in this Article II, which
representations and warranties (unless otherwise noted) are true as of the date
hereof. As a condition to the Operating Partnership's obligation to complete
the acquisition of any Contributor's Interests after the exercise of the
Contribution Right, such representations and warranties must continue to be true
as of the date of the Initial Closing and as of the date of the Final Closing.
2.1 Title to Interests. Each Contributor owns its Interests beneficially
------------------
and of record, free and clear of any claim, lien, pledge, voting agreement,
option, charge, security interest, mortgage, deed of trust, encumbrance, rights
of assignment, purchase rights or other rights of any nature whatsoever
(collectively, "Encumbrances"). Title to the Property is free and clear of any
------------
Encumbrance, except as disclosed as exceptions in the title report for real
property owned or leased by the Asset Entity, dated on or after the date the
Property was acquired by the Asset Entity, provided such title exceptions are
satisfactory to the Operating Partnership in its sole discretion, and as set
forth on Exhibit C attached hereto (any such encumbrance, a "Permitted
--------- ---------
Encumbrance"), and has full power and authority to convey free and clear of any
- -----------
Encumbrances (except, where applicable, the Permitted Encumbrances), its
Interests and, upon delivery of any Assignment by such Contributor conveying its
Interests and delivery of Consideration for such Interests as herein provided,
the Operating Partnership will acquire good and valid title thereto, free and
clear of any Encumbrance except Encumbrances created in favor of the Operating
Partnership by the transactions contemplated hereby and, where applicable, the
Permitted Encumbrances. No Contributor will consent to join in or in any way
effect the transfer of any Asset prior to the Final Closing. At the Final
Closing, if so requested, Contributors will execute all documents necessary to
enable a title insurance company (acceptable to the Operating Partnership, in
its sole discretion) to issue to the Operating Partnership an ALTA Form B (1987
or later) Owner's Policy and such endorsements as the Operating Partnership may
reasonably request, insuring fee simple and/or leasehold title to all real
property and improvements comprising all or any part of the Assets to the
Operating Partnership; provided that each Contributor's cost of complying with
this requirement shall be limited to ten percent of the Consideration to be
received by such Contributor, which amount shall be deducted from such
Consideration at the Final Closing. Each of such Contributor's Interests have
been validly issued and Contributor has funded (or will fund before the same is
past due) all capital contributions and advances to the Asset Entity in which
such Interest represents an interest that are required to be funded or advanced
prior to the date hereof and the date of the Initial Closing and the Final
Closing. There are no agreements, instruments or understandings with respect to
any of such Contributor's Interests except as set forth in the partnership
agreement of the Asset Entity in which an Interest represents a limited partner
or general partner interest or as disclosed in writing to the Operating
Partnership. Such Contributor has no interest, either direct or indirect, in
any of the Assets except for (a) the Interests owned by it which are the subject
of this Contribution Agreement, (b) the Excluded Interests, where applicable,
and (c) direct or indirect interests in
6
<PAGE>
partnerships or other entities which are themselves Contributors hereunder.
Such Contributor covenants that no Encumbrance on his Interests (except, where
applicable, the Permitted Encumbrances) will be in existence as of the date of
the Final Closing. In making the representations in this Section 2.1 regarding
the absence of Encumbrances, each Contributor may assume that the consents and
waivers of rights set forth in Section 6.10 hereof have been given by all
partners of partnerships in which such Contributor's Interest represent direct
or indirect interests. Notwithstanding anything to the contrary contained
herein, to the extent that the Contributor's Interests transferred hereunder
constitute interests in partnerships or other entities ("Continuing
----------
Partnerships") which will continue in existence after the consummation of the
transactions contemplated hereby, such Interests are and will remain subject to
the terms and provisions of the partnership or other organizational agreements
(as amended) of the Continuing Partnerships, including without limitation,
restrictions, options, priorities and partnership loans provided for therein.
2.2 Authority. Such Contributor has full right, authority, power and
---------
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to transfer, convey,
assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms.
Except for any breaches, violations or defaults which will be waived or cured
prior to the Initial Closing and all loans, indentures, creditor agreements or
other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing, the execution, delivery and performance
of this Contribution Agreement and each such agreement, document and instrument
by or on behalf of such Contributor: (a) does not and will not violate such
Contributor's partnership agreement, operating agreement, declaration of trust,
charter or bylaws, if applicable, or other organizational documentation; (b)
does not and will not violate any foreign, federal, state, local or other laws
applicable to or binding on such Contributor or require such Contributor to
obtain any approval, consent or waiver of, or make any filing with, any person
or authority (governmental or otherwise) that has not been obtained or made or
which does not remain in effect; and (c) does not and will not result in a
breach of, constitute a default under, accelerate any obligation under or give
rise to a right of termination of, any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which such Contributor is a party or by which the property
of such Contributor is bound or affected, or result in the creation of any
Encumbrance on any of the property or assets of any partnership in which an
Interest of such Contributor represents an interest. In making the
representations set forth in this Section 2.2, each Contributor may assume that
the consents and waivers of rights set forth in Section 6.10 hereof have been
given by all partners of partnerships or owners of voting interests in entities
in which such Contributor's Interests represent direct or indirect interests.
7
<PAGE>
2.3 Litigation. There is no litigation or proceeding, either judicial or
----------
administrative, pending or overtly threatened, affecting all or any portion of
such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such Contributor's ability to
enter into and perform all of its obligations under this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor represents that it has
---------------------------
not made any agreement with, and will not enter into any agreement with, and has
no obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Interests or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Interests. In making the representations set forth in this
Section 2.4, the Contributor may assume that the consents and waivers of rights
set forth in Section 6.10 hereof have been given by all partners of the Asset
Entities.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
----------
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless the Operating Partnership for all costs and expenses incurred
by the Operating Partnership as a result of a breach of this representation.
The provisions of this Section 2.5 shall survive termination of this
Contribution Agreement.
2.6 Investment Representations and Warranties. Each Contributor who is
-----------------------------------------
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of the
agreement of limited partnership of the Operating Partnership (in substantially
the form attached hereto as Exhibit D) (the "Partnership Agreement"), including
---------------------
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended from time in accordance with its terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such
8
<PAGE>
investment. If such Contributor retained a person to represent or advise it
with respect to the investment in Units that may be made hereby then, at
Contributor's request, such Contributor shall, prior to or at the Initial
Closing, (i) acknowledge in writing such representation and (ii) cause such
representative or advisor to deliver a certificate to the Operating Partnership
containing such representations as are reasonably requested by the Operating
Partnership.
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership and/or Contributor's
position (in the case of certain individual Contributors) as a director or
executive officer of the REIT.
(d) The Units to be issued to such Contributor will be acquired by
such Contributor for its own account (or if such Contributor is a trustee, for a
trust account) for investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Contributor's right
(subject to the terms of the Units) at all times to distribute the Units to
affiliates of such Contributor or to sell or otherwise dispose of all or any
part of its Units under an exemption from such registration available under the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
--------------
securities laws, and subject, nevertheless, to the disposition of its assets
being at all times within its control. Such Contributor was not formed for the
specific purpose of acquiring an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to
such Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws. Such
9
<PAGE>
Contributor hereby acknowledges that because of the restrictions on transfer or
assignment of such Units to be issued hereunder which will be set forth in the
Partnership Agreement and/or in a Registration Rights Agreement (as defined in
Section 5.1 hereof), such Contributor may have to bear the economic risk of the
investment commitment evidenced by this Contribution Agreement and any Units
acquired hereby for an indefinite period of time, although (i) under the terms
of the Partnership Agreement, as it will be in effect at the time of the IPO,
Units will be redeemable at the request of the holder thereof at any time after
the first anniversary of their issuance for cash or (at the option of the REIT)
for Common Shares of the REIT and (ii) the holder of any such Common Shares
issued upon a presentation of Units for redemption will be afforded certain
rights to have such Common Shares registered for resale under the Securities Act
or applicable state securities laws under the Registration Rights Agreement as
described more fully below.
(f) Contributor is an "accredited investor" as defined in Rule 501 of
Regulation D under the Securities Act.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within
--------------------- --------------
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 Covenant to Remedy Breaches. Each Contributor covenants to use all
---------------------------
reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of such Contributor hereunder, (b) to satisfy all
covenants of such Contributor hereunder and (c) to promptly cure any breach of a
representation, warranty or covenant of such Contributor hereunder upon its
learning of same.
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
--------------------------------------------------------
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
---------
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement
10
<PAGE>
and each such agreement, document and instrument by the Operating Partnership:
(a) does not and will not violate the Partnership Agreement; (b) does not and
will not violate any foreign, federal, state and local or other laws applicable
to Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Operating Partnership is a party
or by which the property of the Operating Partnership is bound or affected.
3.2 No Brokers. The Operating Partnership represents that it has not
----------
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
any Contributor to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
ARTICLE IV. CLOSING ADJUSTMENTS
-------------------
4.1 Prorations. The Consideration for the Asset shall be subject to
----------
prorations and credits as follows to be determined as of 12:01 A.M. local time
at the location of the Property on the date of the Final Closing (the
"Adjustment Time"), it being understood that the date of the Final Closing shall
be the first day of income and expense to the Operating Partnership:
(a) Hotel Revenues. Except as set forth below, the Asset Entity
--------------
shall be entitled to all hotel room, food service, bar, beverage and liquor
revenues and charges and all revenues and charges from hotel room
operations, restaurant operations, hotel banquet and conference facility
operations, and other revenue of any kind attributable to the same for the
period prior to the Adjustment Time. The Operating Partnership shall be
entitled to all hotel room, food service, bar, beverage and liquor revenues
and charges and all revenues and charges from restaurant operations, hotel
banquet and conference facility operations, and all other revenue of any
kind attributable to any of the same for the period on and after the
Adjustment Time. Notwithstanding the foregoing, the Operating Partnership
shall be entitled to one-half (1/2) of the revenue from hotel rooms at the
Asset for the night preceding the date of the Final Closing. The Operating
Partnership shall not give the Asset Entity a credit at the date of the
Final Closing for any accounts receivable in connection with the Asset as
of the date of the Final Closing; but the Operating Partnership shall use
reasonable efforts to collect such accounts receivable and shall remit them
to the Asset Entity upon collection, less all reasonable costs of
collection; provided, however, any collection of account receivables shall
first be applied to those accruing after the date of the Final Closing.
The Asset Entity shall provide the Operating Partnership a credit against
the Consideration for the Asset in an amount equal to all guest reservation
11
<PAGE>
deposits held by the hotel for hotel guests arriving or staying after check
out time for the Asset on the date of the Final Closing.
(b) Rents payable under Tenant Leases. Prepaid rent,
---------------------------------
nondelinquent rents, and tax reimbursements under any space leases
affecting the Asset (collectively, "Rents") collected subsequent to the
-----
date of the Final Closing and properly allocable to periods prior to the
date of the Final Closing, net of the Operating Partnership's costs of
collection, if any, shall be paid, promptly after receipt, to the Asset
Entity, but subject to all of the provisions of this Section hereof; and
any portion thereof properly allocable to periods subsequent to the date of
the Final Closing, if any, shall be paid to the Operating Partnership. Any
amount collected from a tenant shall first be applied to such tenant's
current monthly rental and then to past due amounts in the reverse order in
which they were due. Any advance rental payments or deposits paid by
tenants prior to the date of the Final Closing and applicable to the period
of time subsequent to the date of the Final Closing and any security
deposits or other amounts paid by tenants, together with any interest on
both thereof to the extent such interest is due to tenants, shall be
credited to the Operating Partnership on the date of the Final Closing. No
credit shall be given the Asset Entity for accrued and unpaid Rent or any
other non-current sums due from tenants until said sums are paid.
(c) Minimum Working Capital; Cash and Cash Reserves. The Asset
-----------------------------------------------
shall, as of the Closing Time, have working capital equal to $450,000
("Minimum Working Capital"). To the extent all petty cash funds at the
Asset and all cash in any operating accounts for the Asset exceed the
amount required to fund Minimum Working Capital, the Operating Partnership
shall give the Asset Entity a credit on the date of the Final Closing. To
the extent such cash is insufficient to fund Minimum Working Capital, the
deficiency shall be deducted from the consideration payable to Contributor
in accordance with Exhibit A. Any balances remaining in any furniture,
fixtures and equipment reserve accounts shall be transferred to the
Operating Partnership as a part of the Asset. The Operating Partnership
and the Asset Entity shall make mutually satisfactory arrangements for
counting such cash and determining the balances in the operating accounts
as of the Adjustment Time.
(d) Trade Payables. Trade payables shall mean (for all purposes)
--------------
under this Contribution Agreement, open accounts payable to trade vendors
or suppliers of the Asset's hotel, restaurant, bar or similar facilities.
The Asset Entity agrees to give the Operating Partnership a credit on the
date of the Final Closing for all trade payables from the Asset which have
accrued on or prior to the Adjustment Time, and the Operating Partnership
shall be obligated to pay such payables to the extent it has received a
credit from the Asset Entity on the date of the Final Closing. The
Operating Partnership agrees to pay all trade payables from the Asset which
have accrued after the Adjustment Time and shall and hereby does indemnify
and hold the Asset Entity harmless from payment of the same. The
indemnities contained or provided for in this section survive the date of
the Final Closing.
12
<PAGE>
(e) Banquet and Event Deposits. The Operating Partnership shall
--------------------------
receive and be entitled to a credit against the Consideration for all
prepaid deposits for banquets and other functions that are scheduled to
take place at the Asset on or after the date of the Final Closing.
(f) Service Contracts and Equipment Leases. Any amounts prepaid
--------------------------------------
or payable under any Service Contracts or Equipment Leases which the
Operating Partnership has elected to assume shall be prorated at the date
of the Final Closing as of the date of the Final Closing with the Asset
Entity obligated for all sums accrued prior to the Adjustment Time and the
Operating Partnership obligated for all sums accrued after the Adjustment
Time.
(g) Sales Tax. The Operating Partnership shall receive a credit
---------
for any and all sales, occupancy, use or other taxes due in connection with
the operation of the Asset which have accrued prior to the date of the
Final Closing and shall indemnify the Operating Partnership for all such
taxes to the extent the Operating Partnership has not received such credit.
The Operating Partnership shall be responsible to pay all such taxes to the
extent it has received a credit and shall indemnify the Asset Entity for
such taxes. The indemnifications set forth herein shall survive the date
of the Final Closing.
(h) Taxes. The Operating Partnership shall receive a credit for
-----
any due and payable real estate taxes imposed in respect of the Asset for
the portion of the current year which has elapsed prior to the date of the
Final Closing (and to the extent unpaid, for prior years). If the amount
of any such taxes have not been determined as of the date of the Final
Closing, such credit shall be based on the most recent ascertainable taxes
and shall be reprorated upon issuance of the final tax bill. The Asset
Entity shall also give the Operating Partnership a credit for any special
assessments which are levied or charged against the Asset prior to date of
the Final Closing, whether or not then due and payable.
(i) Utilities. Utilities and fuel, including, without
---------
limitation, steam, water, electricity, gas and oil, shall be prorated as of
the date of the Final Closing. The Asset Entity shall cause the meters, if
any, for utilities to be read the day on which the Final Closing occurs and
to pay the bills rendered on the basis of such readings. If any such meter
reading for any utility is not available, then adjustment therefor shall be
made on the basis of the most recently issued bills therefor which are
based on meter readings no earlier than thirty (30) days prior to the date
of the Final Closing; and such adjustment shall be reprorated when the next
utility bills are received.
(j) Employee Expenses. Wages, benefit payments, vacation pay (or
-----------------
the value of any time accrued with respect thereto), and any other
compensation or benefits payable to all persons currently employed for work
in or in connection with the Asset and its operation (collectively,
"Employees") shall be prorated as of the date of the Final Closing; the
Operating Partnership shall not be required to assume any
13
<PAGE>
obligation with respect to any employee benefits that were incurred prior
to the date of the Final Closing and for which the Operating Partnership
did not receive a credit therefor; the Asset Entity shall indemnify the
Operating Partnership and the Operating Partnership against any claim in
connection therewith. The indemnity provided herein shall survive the date
of the Final Closing.
(k) Ground Lease Rents. Prepaid rent, nondelinquent rents,
------------------
delinquent rents, tax reimbursements, and other fees and costs under any
ground, or other leases, or parking agreements to which the Asset is
subject (collectively, "Ground Rents") shall be adjusted and prorated as of
------------
the date of the Final Closing.
(l) Other Expenses. Other prepaid expenses to which the Asset is
--------------
reasonably subject shall be adjusted and prorated as of the date of the Final
Closing.
(m) Gift Certificates. The Operating Partnership shall receive a
-----------------
credit for all gift certificates issued by the Asset and paid for by or on
behalf of the recipient. The Operating Partnership agrees to honor all non-
expired gift certificates issued by the Asset to the extent such non-expired
gift certificates are itemized at the Final Closing.
At least five (5) days prior to the date of the Final Closing, the Asset
Entity shall deliver to the Operating Partnership copies of all information and
records necessary to support the prorations hereunder. In the event any
prorations made pursuant hereto shall prove incorrect for any reason whatsoever,
either party shall be entitled to an adjustment to correct the same.
4.2 Accounts Receivable. The Asset Entity shall retain all accounts
-------------------
receivable and other income items which are attributable to periods prior to the
date of the Final Closing. The Asset Entity shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the Asset Entity. Except for sums actually received by the Operating
Partnership pursuant to the immediately preceding sentence, the Operating
Partnership shall assume no obligation to collect or enforce the payment of any
amounts that may be due to the Asset Entity, except that the Operating
Partnership shall render reasonable assistance, at no expense to the Operating
Partnership, to the Asset Entity after the Final Closing in the event the Asset
Entity proceeds against any third-party to collect any accounts receivable or
other income items due the Asset Entity.
4.3 Security Deposits. An amount equal to all tenant security deposits
-----------------
and all other deposits for advance reservations, banquets or future services or
made in connection with the space leases or the guest bookings and interest
thereon, if any, and any other amounts due with respect to such deposits shall
be paid over to the Operating Partnership at the Final Closing.
14
<PAGE>
4.4 Timing of Calculations; Cooperation. Each Asset Entity and/or
-----------------------------------
Transferor Entity and the Operating Partnership agree to use reasonable efforts
to reconcile, prorate, and adjust all of the foregoing items upon the Final
Closing and, in all events, such reconciliation, proration and adjustment shall
be completed within ninety (90) days after the date of the Final Closing. In
the event any adjustments or prorations made pursuant to this Contribution
Agreement are, subsequent to Final Closing, found to be erroneous, then either
party hereto who is entitled to additional amounts shall invoice the other party
for such additional amounts as may be owing, and such amounts shall be paid
promptly by the other party upon receipt of invoice. Such invoice shall be
accompanied by reasonable substantiating evidence.
4.5 Allocation of Adjustments. All adjustments contemplated by this
-------------------------
Article IV shall, to the extent practicable, be made by adjusting (either up or
down) the cash portion amount of the Consideration and/or the number of Units
issued to each Contributor by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to
the Asset Entity in which the Contributor owns an interest. The amount of an
Asset Entity's adjustments calculated pursuant to this Article IV allocated to
each Contributor shall be that portion equal to that Contributor's pro rata
equity interest in each Asset Entity.
ARTICLE V. POWER OF ATTORNEY
-----------------
5.1 Grant of Power of Attorney. Each Contributor does hereby irrevocably
--------------------------
appoint Jonathan E. Bortz, Michael Barnello, and the Operating Partnership, and
each of them individually and any successor thereof from time to time (such
persons or the Operating Partnership or any such successor of any of them acting
in his, her or its capacity as attorney-in-fact pursuant hereto, the "Attorney-
--------
in-Fact") as the true and lawful attorney-in-fact and agent of such Contributor,
- -------
to act in the name, place and stead of such Contributor:
(a) To enter into a registration rights agreement a form of which is
attached hereto as Exhibit E (the "Registration Rights Agreement").
-----------------------------
(b) To enter into a lock-up agreement (the "Lock-up Agreement") which
-----------------
provides that the Contributors will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of (or announce any offer, sale, offer of sale, contract
of sale, grant of any option to purchase or other sale or disposition of)
any REIT Common Shares or any securities convertible into or exchangeable
for or substantially similar to REIT Common Shares, for a period of one
year from the IPO Closing without the prior written consent of the managing
underwriter named in the Lock-up Agreement.
(c) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the
execution of Closing Documents, Ancillary Agreements, the Partnership
Agreement, any other documents relating to the acquisition by the Operating
Partnership of such Contributor's Interests, and any
15
<PAGE>
consents contemplated by Section 6.10 hereof) and, in general, to do all
things and to take all action which the Attorney-in-Fact in its sole
discretion may consider necessary or proper in connection with or to carry
out the transaction contemplated by this Contribution Agreement, the
Ancillary Agreements, if any, and the Closing Documents as fully as could
such Contributor if personally present and acting.
The Power of Attorney granted by each Contributor pursuant to this Article
V and all authority conferred hereby is granted and conferred subject to and in
consideration of the interests of the Operating Partnership, the REIT and the
other Contributors and is for the purpose of completing the transactions
contemplated by this Contribution Agreement. The Power of Attorney shall
terminate upon termination of this Contribution Agreement. The Power of
Attorney of each Contributor granted hereby and all authority conferred hereby
is coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of such Contributor or by operation of law, whether by the
death, disability, incapacity or liquidation of such Contributor or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which such Contributor is acting as a
fiduciary or fiduciaries), and if, after the execution hereof, such Contributor
shall die or become disabled or incapacitated or is liquidated, or if any other
such event or events shall occur before the completion of the transactions
contemplated by this Contribution Agreement, the Attorney-in-Fact shall
nevertheless be authorized and directed to complete all such transactions as if
such death, disability, incapacity, liquidation or other event or events had not
occurred and regardless of notice thereof. Each Contributor acknowledges that
Jonathan E. Bortz, Michael Barnello and the Operating Partnership have, and any
successor thereof acting as Attorney-in-Fact may have an economic interest in
the transactions contemplated by this Contribution Agreement. Each Contributor
agrees that, at the request of the Operating Partnership, it will promptly
execute a separate power of attorney on the same terms set forth in this Article
V, such execution to be witnessed and notarized.
5.2 Limitation on Liability. It is understood that the Attorney-in-Fact
-----------------------
assumes no responsibility or liability to any person by virtue of the Power of
Attorney granted by each Contributor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
formation of the REIT, the acquisitions of the Interests by the Operating
Partnership, the Registration Statement, the Prospectus or any Preliminary
Prospectus, nor for any aspect of the offering of the REIT's Common Shares, and
it shall not be liable for any error of judgment or for any act done or omitted
or for any mistake of fact or law except for its own gross negligence or bad
faith. Each Contributor agrees that the Attorney-in-Fact may consult with
counsel of its own choice (who may be counsel for the Operating Partnership or
the REIT) and it shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith and in accordance
with the opinion of such counsel. It is understood that the Attorney-in-Fact
may, without breaching any express or implied obligation to the Contributor
hereunder, release, amend or modify any other Power of Attorney granted by any
other Contributor hereunder or by any other person under any related agreement.
The provisions of this Section 5.2 shall not limit or otherwise affect the
obligations of the Operating Partnership (acting for itself and not as Attorney-
in-Fact) under the other Articles of this Contribution Agreement.
16
<PAGE>
5.3 Ratification; Third Party Reliance. Each Contributor does hereby
----------------------------------
ratify and confirm all that the Attorney-in-Fact shall lawfully do or cause to
be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.
ARTICLE VI. MISCELLANEOUS
-------------
6.1 Amendment. Any amendment hereto shall be effective only against those
---------
parties hereto who have acknowledged in writing their consent to such amendment.
No waiver of any provisions of this Contribution Agreement shall be valid unless
in writing and signed by the party against whom enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This Contribution
----------------------------------------------
Agreement and all Ancillary Agreements, including the Lease Agreement to be
entered into between the Operating Partnership and Radisson Bloomington
Corporation, (a) constitute the entire agreement and supersede conflicting
provisions set forth in all other prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
(b) may be executed in several counterparts, each of which will be deemed an
original and all of which shall constitute one and the same instrument and (c)
shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of New York without giving effect to the
conflict of law provisions thereof.
6.3 Assignability. This Contribution Agreement shall be binding upon, and
-------------
shall be enforceable by and inure to the benefit of, the parties hereto and
their respective heirs, legal representatives, successors and assigns; provided,
however, that this Contribution Agreement may not be assigned (except by
operation of law) by any party without the prior written consent of the other
parties, and any attempted assignment without such consent shall be void and of
no effect.
6.4 Titles. The titles and captions of the Articles, Sections and
------
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution Agreement
-----------------------
is intended, nor shall it be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any customer, affiliate,
stockholder, partner, director, officer or employee of any party hereto or any
other person or entity, provided, however, that Sections 5.2, 5.3, 6.3 and 6.10
of this Contribution Agreement shall be enforceable by and shall inure to the
benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution Agreement, or the
------------
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Contribution Agreement and application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto.
17
<PAGE>
The parties further agree to replace such void or unenforceable provision of
this Contribution Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provision and to execute any amendment, consent or
agreement deemed necessary or desirable by the Operating Partnership to effect
such replacement.
6.7 Equitable Remedies. The parties hereto agree that irreparable damage
------------------
would occur in the event that any of the provisions of this Contribution
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Contribution
Agreement and to enforce specifically the terms and provisions hereof in any
federal or state court located in New York (as to which the parties agree to
submit to jurisdiction for the purposes of such action), this being in addition
to any other remedy to which they are entitled under this Contribution Agreement
or otherwise at law or in equity.
6.8 Attorneys' Fees. In connection with any litigation or a court
---------------
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover all costs incurred, including reasonable attorneys'
fees and legal assistants' fees and costs whether incurred prior to trial, at
trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given under this
-------
Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
LaSalle Hotel Operating Partnership, L.P.
220 East 42nd Street
New York, New York 10017
Attention: Michael Barnello
Phone: 212-661-6161
Telecopy: 212-687-8170
with copies to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attention: Michael F. Taylor
Phone: 212-839-5300
Telecopy: 212-839-5599
18
<PAGE>
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
6.10 Waiver of Rights; Consents with Respect to Partnership Interests.
----------------------------------------------------------------
(a) Each Contributor acknowledges that the agreements contained herein
and the transactions contemplated hereby and any actions taken in contemplation
of the transactions contemplated hereby may conflict with, and may not have been
contemplated by, the partnership agreement of one or more partnerships in which
one or more of such Contributor's Interests represents a direct or indirect
interest or another agreement among one or more holders of such Interests or one
or more of the partners of any such partnership. With respect to each
partnership in which an Interest of a Contributor represents a direct or
indirect interest, each Contributor expressly gives all Consents (and any
consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "Conveyance Action" means, with respect to any
-----------------
partnership having a direct or indirect ownership interest in any Asset, (i) the
conveyance or agreement to convey by a partner thereof or by any holder of an
indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any such partner or holder of any action necessary or desirable to
facilitate any of the foregoing, including, without limitation, the following
(provided that the same are taken in furtherance of the foregoing): any sale or
distribution to, or merger with, any person of a direct or indirect interest in
such partnership, the entering into any agreement with any person that grants to
such person the right to purchase a direct or indirect interest in such
partnership, and the giving of the Consents and Waivers contained in this
Section 6.10 or consents or waivers similar thereto in form or purpose. As used
herein, the term "Consents" means, with respect to any such partnership, any
--------
consent necessary or desirable under the partnership agreement of such
partnership or any other agreement among all or any of the holders of interests
therein or any other agreement relating thereto or referred to therein (i) to
permit any and all Conveyance Actions relating to such partnership or to amend
such partnership agreement and/or other agreements so that no provision thereof
prohibits, restricts, impairs or interferes with any Conveyance Action (such
amendments to include, without limitation, the deletion of provisions which
cause a default under such agreement if interests therein are transferred for
cash), (ii) to admit the Operating Partnership as a substitute limited partner
or general partner of such partnership upon the Operating Partnership's
acquisition of a limited or general partnership interest therein, respectively,
and to adopt such amendment as is necessary or desirable to effect such
admission, (iii) to adopt any amendment as may be deemed desirable by the
Operating Partnership, either simultaneously with or immediately prior to the
acquisition of any interest therein, (iv) to
19
<PAGE>
continue such partnership following the transfer of interest therein to the
Operating Partnership, and (v) to merge such partnership with and into the
Operating Partnership. As used herein, the term "Waivers" means, with respect
-------
to a partnership of which an Interest of a Contributor represents a direct or
indirect interest, the waiving of any and all rights that such Contributor may
have with respect to, and (to the extent possible) that any other person may
have with respect to, or that may accrue to such Contributor or other person
upon the occurrence of, a Conveyance Action relating to such partnership,
including, but not limited to, the following rights: rights of notice, rights to
response periods, rights to purchase the direct or indirect interests of another
partner in such partnership or to sell such Contributor's or other person's
direct or indirect interest therein to another partner, rights to sell such
Contributor's or other person's direct or indirect interest therein at a price
other than as provided herein, or rights to prohibit, limit, invalidate,
otherwise restrict or impair any such Conveyance Action or to cause a
termination or dissolution of such partnership because of such Conveyance
Action. Each Contributor further covenants that such Contributor will take no
action to enjoin, or seek damages resulting from, any Conveyance Action by any
holder of a direct or indirect interest in a partnership in which an Interest of
such Contributor represents a direct or indirect interest. The Waivers and
Consents contained in this Section 6.10 shall terminate upon the termination of
this Contribution Agreement, except as to transactions completed hereunder prior
to termination.
(b) Each Contributor by its execution hereof (i) with respect to each
Asset Entity in which an Interest owned by Contributor represents a direct or
indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree; and (ii) agrees that such Contributor's Consideration may be reduced to
reflect such direct transfer of assets and the consequent receipt of Units
directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent as is
necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner therein
and/or a substitute general partner therein if the Operating Partnership by the
exercise of its Contribution Right acquires a limited partnership interest or a
general partnership interest in such partnership, respectively, (ii) to redeem
the interest of any other partner therein who has not agreed to become a party
to this Contribution Agreement or a similar contribution agreement with the
Operating Partnership, (iii) to transfer to all partners thereof, including any
partner who has not agreed to become a party to this Contribution Agreement,
Units and/or cash (provided that such Contributor receives as a result of all
such distributions and the direct payment of consideration hereunder, an amount
of cash and/or Units that is in conformity with the Consideration of such
Contributor provided for herein), and thereafter, at
20
<PAGE>
the Operating Partnership's option, to dissolve, and (iv) any such other
amendment as the Operating Partnership may deem desirable, provided that such
amendment occurs simultaneously with or immediately prior to the acquisition of
the applicable partnership interest and, provided further, that such amendment
will not result in any increased liability on the part of any Contributor
hereunder or under the applicable partnership agreement. The Attorney-in-Fact
may on behalf of each Contributor execute such consents, amendments or other
instruments as it deems necessary or desirable in connection with the foregoing.
6.11 Confidentiality. All press releases or other public communications of
---------------
any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
6.12 Computation of Time. Any time period provided for herein which shall
-------------------
end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next
full business day. All times are Eastern Time.
6.13 Survival. It is the express intention and agreement of the parties
--------
hereto that the representations, warranties and covenants of each Contributor
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.14 Time of the Essence. Time is of the essence with respect to all
-------------------
obligations of Contributor under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Contribution
Agreement, or caused the Contribution Agreement to be duly executed on its
behalf, as of the date first written above.
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES
Its General Partner
By: /s/ Michael D. Barnello
--------------------------------------------
Name: Michael D. Barnello
Title: Chief Operating Officer and
Senior Vice President of Acquisitions
22
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among LaSalle Hotel
Operating Partnership, L.P. and such Contributors, dated as of
_________________, 1998, hereby becomes a party to such Contribution Agreement.
The undersigned agrees that this signature page may be attached to any
counterpart of said Contribution Agreement.
Radisson Group, Inc.
By: /s/ John M. Disaeles
--------------------------------
Name: John M. Disaeles
Title: Vice President - Treasurer
Address of Contributor:
12755 State Highway 55
Minneapolis, MN 55441
Telephone/Facsimile Numbers:
(612) 540-8007
(612) 513-8543
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
23
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Contributor Interest Consideration
- ---------------------- --------------------- -------------------------------
<S> <C> <C>
Radisson Group, Inc. 21.978% limited See attached valuation formula.
partnership interest
in the Asset Entity
</TABLE>
<PAGE>
1 EXHIBIT B
---------
EXCLUDED INTERESTS
<PAGE>
EXHIBIT C
---------
PERMITTED ENCUMBRANCES
<PAGE>
EXHIBIT D
---------
OPERATING PARTNERSHIP AGREEMENT
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT F
---------
ESCROW AGREEMENT
<PAGE>
EXHIBIT 10.13
[FORM OF]
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ("Agreement"), dated as of ______ __, 1998, by and
between LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the
"Company"), and LASALLE HOTEL ADVISORS, INC., a Maryland corporation (the
"Advisor").
WHEREAS, the Company through its interest in LaSalle Hotel Operating
Partnership, L.P. (the "Operating Partnership") is in the business of acquiring,
developing, managing, owning and disposing of hotels (the "Hotels") and leasing
the Hotels to qualified lessees (the "Lessees") pursuant to participating leases
(the "Leases") (for purposes hereof unless the context otherwise requires, the
term "Company" shall include the Company and the Operating Partnership); and
WHEREAS, the Company intends to qualify as a Real Estate Investment Trust
(a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Company desires to retain the services of the Advisor with
respect to the acquisition, leasing, investment management, financing, ownership
and disposition of the Hotels, and to provide certain services to the Company in
connection with such Hotels and Leases on the terms set forth herein and
consistent with the Company's initial and continued qualification and operation
in accordance with all requirements applicable to a REIT; and
WHEREAS, the Advisor is willing to provide such services to the Company on
the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. APPOINTMENT OF ADVISOR. The Company hereby retains the Advisor on the
terms hereinafter set forth, and the Advisor hereby accepts such appointment.
2. DUTIES OF ADVISOR. The Advisor shall perform the following activities
consistent with the Company's stated policy of maximizing current returns to
shareholders through increases in cash available for distribution and to
increase long term total returns to shareholders through appreciation in the
value of its common shares, subject to the direction and supervision of the
Company's Board of Trustees:
(i) identify, negotiate, review and analyze a continuing and
suitable investment program of Hotel acquisitions and developments,
consistent with the investment policies and objectives of the Company
and consistent with the Company's Declaration of Trust;
<PAGE>
(ii) cause the Company to perform its responsibilities and
enforce its rights under the Leases so as to increase lease income and
enhance the Hotels' values;
(iii) identify Hotels for sale consistent with the
Company's investment objectives and prevailing economic conditions and
retain investment banks, brokers or other intermediaries to market for
sale such Hotels;
(iv) advise the Company in connection with its financing
strategy including assisting the Company in the negotiation of any
borrowings which the Company may seek to incur;
(v) maintain or cause to be maintained, on behalf of the
Company, such books and records of account concerning the Company, the
Operating Partnership and the Hotels as are necessary for the proper
management and control of the assets of the Company, in accordance
with generally accepted accounting practices;
(vi) take all actions necessary to enable the Company to
comply with and abide by in all material respects all applicable laws
and regulations;
(vii) administer the day-to-day operations and perform
all necessary and reasonable administrative and "back office"
functions with respect to the Company, the Operating Partnership, the
Hotels and the Leases, including, but not limited to, collecting
rents, paying debts, depositing funds and investing funds in a manner
consistent with the Company's policies;
(viii) assist the Company in preparing reports to, and
meeting materials for, the Company and its shareholders;
(ix) prepare and deliver to the Company quarterly financial
statements within forty-five (45) days of the end of each fiscal
quarter, year end financial statements within ninety (90) days of the
end of the Company's fiscal year and such schedules, reports summaries
and other information regarding the Company's portfolio as may be
requested by the Company from time to time;
(x) oversee investment due diligence and provide research
and economic and statistical data to support the Company's investment
program and strategies;
(xi) retain and oversee third parties hired to conduct and
provide services to the Company such as development management,
project management, design, construction, investment banking services,
property disposition brokerage services, legal, independent accounting
and auditing services (including, without limitation, such reports and
returns as may be required by any governmental authority in connection
with the ordinary conduct of the Company's business, such as the
Securities and Exchange Commission and the Internal Revenue Service,
and any state and local securities commissions and
2
<PAGE>
taxing authorities) and providing tax reviews and advice, feasibility
studies or appraisals, engineering, or environmental property
inspections and consulting services. Such services may be provided by
Affiliates of the Advisor (as defined below) provided such Affiliates
charge the Company no more than the fair market value for such
services and such services are approved by a majority of the Company's
Board of Trustees, including, a majority of the Independent Trustees;
it being understood that certain Affiliates of the Advisor will
provide certain "back office" services such as accounting, human
resources, and review of external consultant reports, as part of the
services to be performed by the Advisor, without additional charge to
the Company. For purposes of this Agreement, "Independent Trustee"
shall mean a trustee who, on the date at issue, is currently serving
on the Board of Trustees and is "independent" as determined by
application of the rules and regulations of the New York Stock
Exchange. For purposes of this Agreement, "Affiliate" means any
company or other entity owned or controlled, directly or indirectly,
by LaSalle Partners Incorporated;
(xii) manage the Company's short-term investments,
including the acquisition and sale of money market instruments in
accordance with the Company's policies; and
(xiii) take such other actions and render such other
services as may reasonably be requested by the Company consistent with
the purpose of this Agreement.
3. ADVISOR'S RESOURCES. The Advisor shall, at its expense, maintain such
office space, facilities, equipment and personnel trained and experienced in the
business of acquisitions, financing, investment management and hotel leasing
sufficient to enable the Advisor to fulfill its obligations under this Agreement
and shall provide, at its expense, administrative personnel as necessary to
provide the services herein. The Advisor shall utilize its Affiliates or
unrelated third parties as necessary to supplement such resources performing the
services required by this Agreement.
4. PAYMENT OF EXPENSES. Except as set forth below, in consideration of
the compensation provided under paragraph 5, the Advisor shall bear all expenses
attributable to the management services to be provided by the Advisor to the
Company hereunder including providing the resources required by paragraph 3
above, without separate reimbursement from the Company. The Advisor, however,
shall be reimbursed by the Company for any amounts the Advisor expends to pay
fees and expenses of third parties providing services to the Company set forth
in paragraph 2(xi) above (including Affiliates providing services in accordance
with 2(xi) above), all other costs and expenses of third parties relating to the
Company's operations, including costs and expenses of acquiring, owning,
protecting, insuring, maintaining and disposing of the Company's investments,
cost and expenses connected with dividends, interest or other distributions,
transfer agents and registrar fees, costs and expenses associated with investor
relations, costs and expenses associated with the continuous reporting and other
requirements of governmental bodies or agencies, including dissemination of
materials to shareholders, or such other costs and expenses as approved by a
majority of the Company's Board of Trustees, including a majority of the
Company's Independent Trustees.
3
<PAGE>
5. COMPENSATION.
(a) The Operating Partnership shall pay to the Advisor in cash a base fee
(the "Base Fee"), at the following percentages of annual Net Operating Income as
defined below ("NOI"):
<TABLE>
<CAPTION>
Incremental NOI of Company Base Fee %
- ------------------------------------------ -----------------------------------------
From up to but excluding
- ------------------ ----------------------
<S> <C> <C>
0 $100,000,000 5.0%
$100,000,000 $225,000,000 an additional 4.8% on such increment
$225,000,000 $350,000,000 an additional 4.6% on such increment
$350,000,000 $475,000,000 an additional 4.4% on such increment
$475,000,000 $600,000,000 an additional 4.2% on such increment
$600,000,000 and any excess an additional 4.0% on such increment
</TABLE>
For purposes of this Agreement, NOI for any period shall mean total revenues
(excluding gains or losses from the sale of Company assets, or any refinancings
thereof) applicable to such period, less the operating expenses applicable to
such period (excluding advisory fees payable hereunder to the Advisor, and
excluding amounts attributable to depreciation and amortization, or reserves for
bad debts or other similar non-cash items or reserves) after adjustment for
unconsolidated partnerships and joint ventures and before adjustment for
minority interest in the Operating Partnership.
The Base Fee shall be payable quarterly on an estimated basis, in arrears
within 45 days of the end of each fiscal quarter. Within ten days after the
Company has received its audited financial statements for the prior year, the
Company shall make a final determination of the Base Fee for such prior year,
and the Operating Partnership shall pay any deficiency or deduct any over-
payment made to the Advisor for such year from the next payment or payments due
to the Advisor pursuant to this Agreement.
(b)(i) For the calendar year ending December 31, 1998, the Operating
Partnership shall pay the Advisor in arrears an incentive fee (the "1998
Incentive Fee") in an amount equal to 25% of the product of (A) the amount by
which the "FFO per Share Amount" (as defined below), calculated on a pro forma
basis as if the IPO had occurred on January 1, 1998, exceeds a growth rate of 7%
per annum of the FFO per Share Amount for the calendar year ended December 31,
1997, calculated on a pro forma basis as if the IPO had occurred on January 1,
1997 and (B) the Shares Outstanding (as defined below) for the calendar year
ending December 31, 1998. The 1998 Incentive Fee calculation shall be pro rated
based upon the number of days remaining in calendar 1998 from the date of the
IPO.
(ii) For the calendar year ending December 31, 1999, the Operating
Partnership shall pay the Advisor in arrears an incentive fee (the "1999
Incentive Fee") in an amount equal to 25% of the product of (A) the amount by
which the FFO per Share Amount, for calendar year 1999 exceeds a growth
4
<PAGE>
rate of 7% per annum by the FFO per Share Amount for the calendar year ended
December 31, 1998, calculated on a pro forma basis as if the IPO had occurred on
January 1, 1998 and (B) the Shares Outstanding for the calendar year ending
December 31, 1999.
(iii) Thereafter, the Operating Partnership shall pay to the Advisor
annually in arrears an incentive fee (the "the Incentive Fee") in an amount
equal to 25% of the product of (A) the amount by which the FFO per Share Amount
for the calendar year then ended (the "Measurement Year") exceeds a growth rate
of 7% per annum of the FFO per Share Amount for the prior calendar year and (B)
the Shares Outstanding for the Measurement Year. The Incentive Fee shall be
deemed to have been earned as of the end of the Management Year and shall be
paid as set forth below upon determination of the FFO per share for the
Management Year. For fees payable for any year in which fees are not payable for
the entire calendar year, the fees shall be calculated as if this Agreement had
been in effect for the entire year, but shall be pro rated and payable for only
that portion of the year this Agreement was in effect.
For purposes of this Agreement, "Funds from Operations" shall mean the
Company's net income (loss) (computed in accordance with generally accepted
accounting principles ("GAAP")), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will
be calculated to reflect Funds from Operations on the same basis.
"FFO per Share Amount" means an amount equal to the Funds from Operations
divided by the Shares Outstanding.
"Shares Outstanding" means, for purposes of calculating the FFO per Share
Amount, the weighted average number of shares of beneficial interests of the
Company (the "Shares") outstanding (as determined by GAAP), including any
beneficial interests in the Operating Partnership (the "Units"), for the period
such calculation is made; provided, however, that appropriate equitable
adjustments shall be made when calculating the FFO per Share Amount in the event
of any extraordinary transactions such as stock splits, stock dividends, etc.
Payment of the Incentive Fee shall be made by the Operating Partnership, at
the option of the Advisor, in Shares or Units (with one Unit convertible into
one Share) unless and to the extent, receipt of Shares would adversely affect
the Company's status as a REIT, in which such event the Advisor shall receive
Units. The number of Shares or Units shall be the nearest whole number of Shares
or Units, as the case may be, obtained by dividing the Incentive Fee by the
average closing price of the Shares on the New York Stock Exchange (or such
other exchange or national market system on which the Shares are then traded)
for the Measurement Year. Any such Shares or Units shall not be transferable,
other than to Affiliates of the Advisor, except by operation of law for a period
of one year from the date of issuance.
(c) Notwithstanding anything herein to the contrary, for the year ending
December 31, 1998 the sum of the Base Fee and the 1998 Incentive Fee shall not
exceed 6% of the Company's pro forma NOI for the calendar year 1998 with such
calculation pro rated as if the calendar year 1998 began on the date of the IPO.
5
<PAGE>
(d) The Company shall purchase Officers and Trustees (or Directors)
insurance in reasonably acceptable and customary levels for the Officers and
Trustees of the Company and Officers and Directors of the Advisor. Such policy
shall constitute primary coverage for the individuals covered thereby for their
activities relating to the Company and the Advisor.
(e) Nothing in this Agreement shall preclude or restrict the Company from
the direct acquisition of Hotels or the negotiation and execution of Leases
without the assistance of the Advisor.
6. REIT STATUS. Notwithstanding anything in this Agreement to the
contrary, the Advisor shall not take any action which would (a) adversely affect
the status of the Company as a REIT, (b) subject the Company to regulation under
the Investment Company Act of 1940, as amended or (c) violate any law, rule,
regulation or policy of any governmental body or agency having jurisdiction over
the Company or otherwise prohibited by the Company's Declaration of Trust, its
Bylaws or resolutions of the Board of Trustees all as in effect from time to
time. In the event the Company authorizes or directs the Advisor to take any
actions which, in the judgment of the Advisor would violate any of the
foregoing, the Advisor shall so advise the Company in writing specifying the
basis for its position and shall take no further action with respect to such
matters unless and until it receives clarification and instructions from the
Board of Trustees.
7. LIMITATION OF LIABILITY AND INDEMNIFICATION OF ADVISOR.
7.1 Limitation on Liability.
-----------------------
The Advisor shall have no responsibility other than to render the services
and take the actions described herein in good faith and with the exercise of due
care and shall not be responsible for any action of the Board of Trustees in
following or declining to follow any advice or recommendation of the Advisor.
The Advisor, except by reason of its own gross negligence, bad faith or willful
misconduct, shall not be liable for any action taken, omitted or suffered to be
taken by it in good faith and believed by it to be authorized or within its
discretion or rights or powers conferred upon it by this Agreement or in
reliance upon the written opinion of counsel of recognized expertise.
7.2 Indemnification.
---------------
(a) The Company shall reimburse, indemnify and hold harmless the Advisor
and its partners, directors, officers, stockholders, agents and employees and
each other person or entity, if any, controlling the Advisor (an "Indemnified
Party"), to the full extent lawful, from and against any and all losses, claims,
damages or liabilities of any nature whatsoever with respect to or arising from
any acts or omission of the Advisor (including ordinary negligence) in its
capacity as such, except with respect to losses, claims, damages or liabilities
with respect to or arising out of the Advisor's gross negligence, bad faith or
willful misconduct.
Notwithstanding the indemnification provisions in Section 7.2(a) above,
indemnification will not be allowed for any liability imposed by judgment, and
costs associated therewith, including attorneys' fees, arising from or out of a
violation of state or federal securities laws associated with the offer and sale
of Company shares. Indemnification will be allowed for settlements and related
expenses of lawsuits alleging securities law violations, and for expenses
6
<PAGE>
incurred in successfully defending such lawsuits, provided that a court either
(i) approves the settlement and finds that indemnification of the settlement and
related costs should be made; or (ii) approves indemnification of litigation
costs if a successful defense is made. If indemnification is unavailable as a
result of this Section 7.2(a), the Company shall contribute to the aggregate
losses, claims, damages or liabilities to which the Advisor or its partners,
officers, directors, agents, employees or controlling persons may be subject in
such amount as is appropriate to reflect the relative benefits received by each
of the Company and the party seeking contribution on the one hand and the
relative faults of the Company and party seeking contribution on the other, as
well as any other relevant equitable considerations.
(b) Promptly after receipt by an Indemnified Party of notice of the
commencement of any action, such Indemnified Party shall, if a claim in respect
thereof is to be made against the Company, notify the Company in writing of the
commencement thereof; but the omission to so notify the Company shall not
relieve it from any liability that it may have to any Indemnified Party pursuant
to this Section 7.2. In case any such action shall be brought against an
Indemnified Party and it shall notify the Company of the commencement thereof,
the Company shall be entitled to participate therein and, to the extent that it
shall wish, to assume the defense thereof, with counsel satisfactory to such
Indemnified Party and, after notice from the Company to such Indemnified Party
of its election to assume the defense thereof, the Company shall not be liable
to such Indemnified Party under Section 7.2(a) hereof for any legal expenses of
other counsel or any of the expenses, in each case subsequently incurred by such
Indemnified Party, unless (i) the Company and the Indemnified Party shall have
mutually agreed to the retention of such counsel or, (ii) the named parties to
any such proceeding (including any impleaded parties) include both the Company
and Indemnified Party and representation of both parties by the same counsel
would be inappropriate in the reasonable opinion of the Indemnified Party, due
to actual or potential differing interests between them.
The obligations of the Company under this Section 7.2 shall be in addition
to any liability which the Company otherwise may have.
8. BOOKS AND RECORDS. All books and records compiled by the Advisor in
the course of discharging its responsibilities under this Agreement shall be the
property of the Company and shall be delivered by the Advisor to the Company
immediately upon any termination of this Agreement and regardless of the grounds
for such termination (including, but not limited to, a breach by the Company of
this Agreement); provided, however, that the Advisor shall have reasonable
access to such books and records to the extent reasonably necessary in
connection with the conduct of its services hereunder. The Advisor shall not
maintain or assert any lien against or upon any of the books and records and all
such books and records concerning the Hotels and/or the Leases. If requested by
the Company, the Advisor shall maintain records including, but not limited to
(a) pro-rated costs (including salaries, commissions, bonuses and benefits) of
personnel employed by the Advisor and who are involved in the acquisition, and
administrative process related to the acquisitions of Hotels which are
identified by the Advisor and acquired by the Company during the term of this
Agreement (the "Acquisition Process"); (b) all costs of fees, taxes and
assessments applicable to the Acquisition Process; (c) travel, lodging and
entertainment expenses related to the Acquisition Process and (d) other general
and administrative expenses, including expenses for administrative personnel
relating to the Acquisition Process;
7
<PAGE>
9. TERM AND TERMINATION.
(a) This Agreement shall become effective upon the successful completion of
the Company's IPO and shall continue through December 31, 1999 and shall be
automatically extended for successive one year terms thereafter without further
action by either the Company or the Advisor unless earlier terminated, as
provided herein. This Agreement shall be automatically renewed for additional
one (1) year terms unless either party gives written notice to the other party
of termination 180 days prior to the expiration of the then current term.
(b) The Company also may, at any time, terminate this Agreement:
(i) immediately upon providing written notice to the Advisor if the
Advisor is determined by unanimous vote of all Independent Trustees of
the Company, taken after at least fourteen (14) days prior written
notice to the Advisor of such vote, to have committed an act of actual
fraud, willful malfeasance, or gross negligence relating to its duties
and responsibilities under this Agreement or a material breach by the
Advisor of its obligations under this Agreement which is not remedied
in a reasonable period of time after receipt of written notice from
the Independent Trustees specifying such breach ;
(ii) upon written notice effective immediately, given not earlier than
thirty (30) days after the Advisor shall (A) authorize or agree to the
commencement of a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency, receivership or other
similar law now or hereafter in effect or the appointment of a
trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, (B) make a general
assignment for the benefit of its creditors, or (C) have an
involuntary or other proceeding commenced against it seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
thereafter in effect, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period exceeding sixty
(60) days.
(c) Upon any termination of this Agreement by the Company, the Advisor
shall, upon the Company's request, cooperate with and assist the Company in
finding a new entity to act as advisor to the Company and in assisting the
Company with the transition process.
10. NOTICES. Any notices, instructions or other communications required
or contemplated by this Agreement shall be deemed to have been properly given
and to be effective upon delivery if delivered in person or sent by telecopier
or upon receipt if sent by courier service.
All such communications to the Company shall be addressed as follows:
LaSalle Hotel Properties
220 East 42nd Street, Suite 2700
New York, New York 10017
Attention: President
8
<PAGE>
Telecopier: (212) 687-8170
With a copy to:
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Attention: Michael F. Taylor
Telecopier: (212) 839-5599
All such communications to the Advisor shall be addressed as follows:
LaSalle Hotel Advisors, Inc.
220 East 42nd Street, Suite 2700
New York, New York 10017
Attention: President
Telecopier: (212) 687-8170
With copies to:
Hagan & Associates
200 East Randolph Drive, Suite 4322
Chicago, Illinois 60601
Attention: R.K. Hagan
Telecopier: (312) 228-0982
and;
LaSalle Partners Incorporated
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Chief Financial Officer
Telecopier: (312) 228-0980
Either party hereto may designate a different address by written notice to
the other party delivered in accordance with this Section 11.
11. DELEGATION OF RESPONSIBILITIES. Notwithstanding anything contained
herein to the contrary, the Advisor may delegate any and all of its
responsibilities and obligations under this Agreement to its Affiliates. Any
delegation of responsibilities by the Advisor shall not be inconsistent with any
express instructions of the Board of Trustees; shall not cause the Company to
incur any financial responsibility to the delegee except to the extent
specifically permitted under Paragraph 4 and shall not relieve the Advisor of
its obligations to the Company with respect to the responsibilities delegated
and with respect to which delegated responsibilities the Advisor shall remain
liable to the Company.
12. NONCOMPETE AGREEMENT. The Advisor and its Affiliates shall not invest
directly or indirectly or on behalf of others in any hotel properties in the
9
<PAGE>
United States (the "Competitive Hotels"), other than through the Company except
for the excluded properties set forth in Exhibit A hereto and except for hotels
constituting part of a mixed-use property where less than 40% of the property's
NOI is attributable to the hotel. Notwithstanding the foregoing, no Affiliate
shall be restricted from acquiring interests directly or indirectly, in
Competitive Hotels or providing asset management services with respect to
Competitive Hotels to the extent that such Affiliate (i) is a Registered
Investment Advisor under the Investment Advisors Act of 1940 and makes such
acquisition or gives such advice in the ordinary course of management activities
for securities investments, (ii) acquires a company or other entity which owns
or provides asset management services with respect to Competitive Hotels,
provided (a) it is not a material activity of such company or entity, (b) such
company or entity does not engage in activities relating to additional
Competitive Hotels, after such acquisition, and (c) the Advisor maintains a
"Chinese wall" between employees of the Advisor and those of such company or
entity with respect to such activities, or (iii) invests in debt or debt
securities, including debt or debt securities which have equity components, to
the extent the intention of such Affiliate at the time such investment was made
was not to exercise its rights to directly hold such equity or (iv) is engaged
in financing, disposition, consulting, development management or facility
related (e.g., accounting or engineering) services with respect to Competitive
Hotels. For purposes of this Agreement, "material" shall mean twenty percent
(20%) of the company's activities.
13. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ADVISOR. The Advisor
represents and warrants to, and covenants and agrees with, the Company as
follows:
(a) The Advisor, taking into account its own personnel and the
personnel available to it through its Affiliates, has access to personnel
trained and experienced in the business of acquisitions, leasing of hotels
asset management, financing, and the ownership and dispositions of hotels,
and such other areas as may be necessary and sufficient to enable the
Advisor to perform its obligations under this Agreement.
(b) The Advisor shall comply with all laws, rules, regulations
and ordinances applicable to the performance of its obligations under this
Agreement.
(c) Neither the Advisor nor any of its Affiliates is party to or
otherwise bound by or, during the term of this Agreement (including any
extension thereof), will become party to or otherwise bound by, any
agreement that would restrict or prevent (i) except as set forth on Exhibit
A attached hereto, the Advisor from performing any obligation contemplated
by this Agreement or (ii) the Company from operating its business as
proposed to be conducted, including, without limitation, acquiring any
Hotel in any geographic market in the United States or any foreign country.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws principals thereof.
15. ENTIRE AGREEMENT. This Agreement reflects the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes and
replaces all agreements between the Company and the Advisor with respect to the
subject matter hereof.
10
<PAGE>
16. RELATIONSHIP OF PARTIES. The parties intend that the Advisor shall
act as an independent contractor in performing services for the Company
hereunder. Nothing contained herein is intended to, or shall be construed to,
constitute the Advisor as a partner, joint venturer or agent of the Company.
17. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the parties to this Agreement and their respective
successors and permitted assigns, and no other person or entity shall acquire or
have any right under, or by virtue of, this Agreement. The Company shall be
entitled to assign this Agreement to any successor to all or substantially all
of its assets, rights and/or obligations; the Advisor shall have the right to
assign this Agreement to any Affiliate (as such term is defined in Section 12.)
18. AMENDMENT, MODIFICATIONS AND WAIVER. This Agreement hereto shall not
be altered or otherwise amended in any respect, except pursuant to an instrument
in writing signed by the parties hereto. The waiver by a party of a breach of
any provisions of this Agreement shall not operate or be construed as a waiver
of any subsequent breach.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
LASALLE HOTEL PROPERTIES
By: ______________________________
Name:
Title:
LASALLE HOTEL
OPERATING PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES
its general partner
By: ______________________________
Name:
Title:
LASALLE HOTEL ADVISORS, INC.
By: ______________________________
Name:
Title:
11
<PAGE>
Exhibit A
Project
--------------------------
Hotel Nikko,
San Francisco, CA
Orlando Peabody,
Orlando, FL
Greensboro Hilton Hotel,
Greensboro, NC
Holiday In on the Hill,
Washington, D.C.
The Camberly Gunter,
San Antonio, TX
The Radisson Charlotte
Hotel, Charlotte, NC
12
<PAGE>
EXHIBIT 10.14
[FORM OF]
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is executed as of the [ ] day
of[ ] 1979 ("Effective Date") by and between [
] a limited partnership organized under the laws of with its principal office at
[ ] ("Owner") and
[ ] corporation, with its principal office at [
] ("Management Company").
W I T N E S S E T H
WHEREAS, Owner plans to construct and equip a hotel in [ ] as
more fully described in Section 3.01 ("Hotel"), and
WHEREAS, Owner desires to have the Management Company manage and operate
the Hotel and the Management Company is willing to perform such services for the
account of Owner,
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
1.01 Appointment
-----------
Owner hereby appoints and employs the Management Company as Owner's
exclusive agent to supervise, direct and control the management and operation of
the Hotel for the term provided in Article IV. The Management Company accepts
said appointment and agrees to manage the Hotel during the term of
<PAGE>
this Agreement in accordance with the terms and conditions hereinafter set
forth. The performance of all activities by the Management Company hereunder
shall be for the account of Owner.
1.02 Delegation of Authority
-----------------------
Except as otherwise specifically provided in this Agreement, the operations
of the Hotel shall be under the exclusive supervision and control of the
Management Company, which shall be responsible for the proper and efficient
operation of the Hotel. Except as otherwise specifically provided in this
Agreement, the Management Company shall have discretion and control, free from
interference, interruption or disturbance, in all matters relating to the
management and operation of the Hotel, including, without limitation, charges
for rooms and commercial space, credit policies, food and beverage services,
employment policies, granting of concessions or leasing of shops and agencies
within the Hotel, receipt, holding and disbursement of funds, maintenance of
bank accounts, procurement of inventories, supplies and services, promotion and
publicity and, generally, all activities necessary for the operation of the
Hotel as a first-class hotel with related amenities. Notwithstanding the
foregoing, the Management Company shall have the duty to keep Owner informed
concerning the operation of the Hotel and, subject to this Agreement, to
maintain the Hotel as a first-class income-producing commercial property.
1.03 No Covenants or Restrictions
----------------------------
2
<PAGE>
It is a condition of Management Company's obligations hereunder that there
will be on the Opening Date (as defined in Section 2.01 F) no covenants or
restrictions which would prohibit or unduly limit the Management Company from
operating the Hotel as a Marriott facility, after the necessary licenses and
permits therefor have been obtained by Management Company on behalf of the
Owner, including cocktail lounges, restaurants and other facilities customarily
a part of or related to a first-class hotel. Owner agrees upon request by the
Management Company to sign promptly and without charge applications for
licenses, permits or other instruments necessary for operation of the Hotel.
END OF ARTICLE I
3
<PAGE>
ARTICLE II
DEFINITION OF TERMS
-------------------
2.01 Definition of Terms
-------------------
The following terms when used in this Agreement shall have the
meanings indicated:
A. "Accounting Period" shall mean the four (4) week accounting periods
-----------------
having the same beginning and ending dates as the Management Company's four (4)
week accounting periods, except that an Accounting Period may occasionally
contain five (5) weeks when necessary to conform the Management Company's
accounting system to the calendar.
B. "Fiscal Year" shall mean the Management Company's Fiscal Year which
-----------
now ends at midnight on the Friday which is closest to December 31 in any given
calendar year; the new Fiscal Year begins on the Saturday immediately following
said Friday. Any partial Fiscal Year between the Opening Date (as defined in
Section 2.01F) and the commencement of the first full Fiscal Year shall be
included as part of the first full Fiscal Year; provided that any such partial
Fiscal Year which is longer than six (6) full Accounting Periods shall
constitute a separate Fiscal Year. A partial Fiscal Year between the end of the
last full Fiscal Year and the Termination of this Agreement shall, for purposes
of this Agreement, constitute a separate Fiscal Year. If the Management
Company's Fiscal Year is changed in the future, appropriate adjustment to this
Agreement's reporting and accounting procedures shall be made; provided,
however, that no such change or adjustment shall alter the term of this
Agreement
4
<PAGE>
or in any way reduce the distributions of Operating Profit or other payments due
Owner hereunder.
C. "Fixed Asset Supplies" shall mean supply items included within
--------------------
"Property and Equipment" under the Uniform System of Accounts (as defined in
Section 2.01 J) including linen, china, glassware, silver, uniforms, and similar
items.
D. "Gross Revenues" shall mean all revenues and receipts of every kind
--------------
derived from operating the Hotel and all departments and parts thereof,
including, but not limited to, income (from both cash and credit transactions),
before commissions and discounts for prompt or cash payments, from the rental of
rooms, stores, offices, exhibit or sales space of every kind, license, lease and
concession fees and rentals (not including gross receipts of licensees, lessees
and concessionaires), vending machines, health club membership fees, food and
beverage sales, wholesale and retail sales of merchandise, service charges, and
proceeds, if any, from business interruption or other loss of income insurance;
provided, however, Gross Revenues shall not include gratuities to Hotel
employees or federal, state and municipal excise, sales and use taxes or similar
Impositions collected directly from patrons or guests or included as part of the
sales price of any goods or services.
E. "Inventories" shall mean "Inventories" as defined in the Uniform
-----------
System of Accounts, such as provisions in storerooms, refrigerators, pantries
and kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical
5
<PAGE>
supplies, stationery; and other expensed supplies and similar items.
F. "Opening Date" shall mean the formal opening date of the Hotel, which
------------
shall be established and certified by the Management Company, which shall use
its reasonable business judgment in the selection of said date.
G. "Operating Profit" shall mean the excess of Gross Revenues over the
----------------
following deductions ("Deductions") incurred by the Management Company in
operating the Hotel:
1. Cost of sales, salaries, wages, fringe benefits, payroll taxes
and other costs related to Hotel employees;
2. Departmental expenses, administrative and general expenses and
the cost of Hotel advertising and business promotion, heat, light and power, and
routine repairs, maintenance and minor alterations treated as Deductions under
Section 8.01 (provided that the cost of management relocation shall be included
exclusively in subsection 9 hereof);
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Hotel;
4. A reasonable allowance for uncollectible accounts receivable as
determined by the Management Company;
5. All costs and fees of independent accountants or other third
parties (who shall not be employees of Management Company, nor of any of its
affiliates) who perform services required or permitted hereunder;
6. The cost and expense of technical consultants and operational
experts (who shall not be employees of Management
6
<PAGE>
Company, nor of any of its affiliates) for specialized services in connection
with non-routine Hotel work;
7. An amount equal to [ ] percent ([ ]) of Gross Revenues.
This amount will provide partial or total reimbursement to the Management
Company for the Hotel's share of costs and expenses incurred by the Management
Company or its affiliated companies for all services which benefit the Hotel
(and which may or may not also benefit other Marriott hotels) and which are
performed by personnel not normally located at the Hotel and are not Chain
Services (as defined in Section 11.03). Such services include executive
supervision, consulting, planning, policy making, corporate finance, personnel
and employee relations, in-house legal services, trademark protection, research
and development, and the services of the Management Company's technical,
operational and marketing experts making periodic inspection and consultation
visits to the Hotel;
8. The amount to be credited to the Repairs and Equipment Reserve
described in Section 8.02;
9. The Hotel's pro rata share of costs and expenses incurred by the
Management Company in providing Chain Services (as defined in Section 11.03);
10. All insurance costs and expenses as provided in Article XII,
except for those costs which are paid exclusively by Management Company pursuant
to an approved self-insurance program under Section 12.04 B.
11. Taxes, if any, payable by or assessed against the Owner or the
Management Company related to this Agreement, or to the Management Company's
operation of the Hotel, or to the
7
<PAGE>
Owner's ownership of the Hotel (exclusive of the Management Company's or the
Owner's income taxes, but including personal property and real estate taxes
assessed against the Hotel);
12. Such other costs and expenses, not including the debt service on
any financing secured by the Hotel or otherwise obtained in connection with the
Hotel, as are specifically provided for elsewhere in this Agreement or are
otherwise reasonably necessary for the proper and efficient operation of the
Hotel.
H. "Operating Loss" shall mean a negative Operating Profit.
--------------
I. "Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
J. "Uniform System of Accounts" shall mean the Uniform System of Accounts
--------------------------
for Hotels, Seventh Revised Edition, 1977, as published by the Hotel Association
of New York City, Inc.
K. "Working Capital" shall mean, as of any given point in time, the sum
---------------
total of (i) cash maintained at the Hotel, funds in operating bank accounts,
receivables, prepaid expenses and Inventories, less (ii) accounts payable and
accrued current liabilities (excluding deferred income taxes and the current
portion of long-term debt and capitalized leases).
L. "First Mortgage" shall mean that instrument by which Owner obtains
--------------
the permanent first-lien financing, from an institutional lender, for the Hotel
in accordance with the financing plan described in Section 3.01. Unless
specifically stated to the contrary elsewhere herein, the term "First
8
<PAGE>
Mortgage" shall not include renewals, extensions, amendments or refinancings of
said instrument.
M. "Project Cost" shall include all costs of constructing and initially
------------
equipping and furnishing the Hotel, including the purchase price of the Site,
all interim financing costs and all architectural and professional fees and
expenses, but not including "Pre-Opening Expenses" (as defined in Article VI).
N. "Owner's Equity" shall mean the total equity investment made by the
--------------
Owner and the Tenant referred to in Section 18.01 B in the Project Cost of the
Hotel, including initial working capital.
END OF ARTICLE II
9
<PAGE>
ARTICLE III
THE HOTEL
---------
3.01 Construction and Financing
--------------------------
A. Owner intends, at its sole cost and expense, to have constructed
on the site ("Site") described in Exhibit A a hotel building, fully equipped, in
accordance with the provisions of a technical services agreement ("Technical
Services Agreement") between Owner and the Management Company (or o ne of its
affiliated companies) executed concurrently herewith. The Site, the
improvements and all fixtures, furnishings, equipment and supplies installed
therein are collectively referred to in this Agreement as the "Hotel".
B. The Management Company will have the option of terminating this
Agreement if:
1. Owner has not obtained a commitment for the long term debt
financing for the Hotel, in an aggregate amount not to exceed [ ]
percent ([ ]) of the Project Cost of the Hotel, at an annual constant not to
exceed [ ] percent ([ ]), within one (1) year of the Effective
Date; or
2. Construction on the Hotel has not commenced within eighteen (18)
months of the Effective Date; or
3. The Hotel is not completed in accordance with plans,
specifications, construction safety and fire safety standards, designs and time
schedules, as set forth in the Technical Services Agreement.
3.02 Ownership of Hotel
------------------
A. Owner hereby covenants that it has an option to acquire the Site
pursuant to an agreement, a copy of which has been
10
<PAGE>
delivered to the Management Company, and that upon completion of the Hotel it
will have, keep and maintain good and marketable fee title interest therein free
and clear of any and all:
1. Easements or other encumbrances (other than those listed in
subsections 2 and 3 hereof) except those which do not materially adversely
affect the operation of the Hotel by the Management Company;
2. Mortgages, deeds of trust or similar security instruments except
those which provide that this Agreement shall not be subject to forfeiture or
termination other than in accordance with the provisions hereof, notwithstanding
a default under such mortgage or deed of trust; and
3. Liens for taxes, assessments, levies or other public charges not
yet due or which are being contested in good faith.
B. Management Company shall have no obligation to pay or discharge any
installments of principal or interest due and payable upon any mortgage, deed of
trust or like instrument described in this Section, nor shall any such payments
be Deductions. Owner shall indemnify the Management Company from and against
all claims, litigation and damages arising from Owner's failure to make such
payments as and when required.
C. In the event the mortgagee or mortgagees under any mortgage, deed of
trust or like instrument described in this Section shall reasonably request that
amendments be made in this Agreement, Management Company agrees to enter into
such amendments provided that there shall be no adverse change whatsoever in any
of Management Company's substantive rights,
11
<PAGE>
remedies or duties hereunder. Management Company further agrees that it will
enter into an agreement with the holder of the First Mortgage pursuant to which
Management Company's rights in and to this Agreement will be made subject and
subordinate to the lien of the First Mortgage, provided that said holder of the
First Mortgage simultaneously agrees that this Agreement shall not be forfeited
or terminated other than in accordance with the terms hereof, notwithstanding a
default under the First Mortgage or the exercise by said holder or any successor
of any remedies with respect to such a default.
END OF ARTICLE III
12
<PAGE>
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence on
the Effective Date and, unless sooner terminated as herein provided, shall
continue for that period of time from the Effective Date to the last day of the
Fiscal Year in which the initial term of Owner's First Mortgage on the Hotel
premises expires. In no event shall said Initial Term be less than [ ]
or more than [ ] Fiscal Years from the Opening Date. Also, said
Initial Term shall not be reduced or in any way affected by any prepayment or
early termination of the First Mortgage.
B. The term may thereafter be renewed by the Management Company, at its
option (on the same terms and conditions contained herein), for each of [
] successive periods of [ ] Fiscal Years each ("Renewal Terms"), provided
that this Agreement is in full force and effect and the Management Company is
not then in default hereunder. If the Management Company elects to exercise any
such option to renew, it shall give Owner notice to that effect not less than [
] months prior to the expiration of the then current term.
4.02 Performance Termination.
-----------------------
A. Owner shall have the right (subject to subsection B) at its option to
terminate this Agreement on [ ] month's written notice to the Management
Company if, in each of [ ] consecutive Fiscal Years after the first full
Fiscal Years after
13
<PAGE>
the Opening Date, the "Owner's Distribution" (as defined in Section 5.01) is
less than the following amounts:
1. Up to and including the end of the [ ] full Fiscal Year
from the Opening Date, the amount of the annual debt service on the First
Mortgage; and
2. After the end of the [ ] full Fiscal Year from the Opening
Date, but prior to the end of the [ ] full Fiscal Year from the Opening
Date, the sum of the amount of the annual debt service on the First Mortgage
plus a return [ ] [ ] per annum to Owner on the Owner's Equity.
3. After the end of the [ ] full Fiscal Year from the
Opening Date, the sum of the amount of the annual debt service on the First
Mortgage plus a return of per annum to Owner on the Owner's Equity.
If Owner elects to so terminate under said circumstances, the notice of
election to terminate shall be served within [ ] days of the receipt by
Owner of the annual financial statements (referred to in Section 9.01) for the
second such consecutive Fiscal Year.
B. Upon receipt of Owner's notice of termination, as described in
subsection A, Management Company shall have the option, to be exercised within [
] days of the receipt of said notice,to lend Owner, on a non-interest-bearing
basis, the amount of any deficiency described in subsection A. Any such loans
by Management Company shall be evidenced by Owner's unsecured promissory note
and shall be repaid to Management Company solely from the first available excess
of "Owner's Distribution" (as defined in Section 5.01), if any, over the sum
14
<PAGE>
of (i) the annual debt service on the First Mortgage, (ii) a return to Owner of
[ ] per annum on the total amount of Owner's Equity, and (iii) the
recovery by Management Company of all current and deferred portions of its
"Incentive Fee" pursuant to Section 5.01. If the Management Company does not
exercise its option to make a loan pursuant to this subsection B, then this
Agreement shall be terminated upon the expiration of the aforesaid [ ]
day period from the receipt of Owner's notice of termination as though the term
hereof had expired without renewal.
4.03 Termination by Owner
--------------------
Notwithstanding any other provision of this Agreement, upon the occurrence
of any of the [ ] events listed in Section 4.07B of the "Articles of
Limited Partnership" of [ ] dated the date hereof, Owner shall have
the right to terminate this Agreement upon [ ] days prior written notice to
Management Company.
END OF ARTICLE IV
15
<PAGE>
ARTICLE V
COMPENSATION OF THE MANAGEMENT COMPANY
AND DISTRIBUTION OF OPERATING PROFIT
--------------------------------------
5.01 Management Fee
--------------
In consideration of the services to be performed during the term of this
Agreement, the Management Company shall, subject to adjustment under Section
6.02 B, retain (or be paid by Owner) as its management fee ("Incentive Fee") for
each Fiscal Year a sum equal to [ ] of the Operating Profit,
subject to the deferral provisions set forth below. The [ ]
balance of Operating Profit shall, subject to adjustment under Section 6.02 B,
be distributed to Owner ("Owner's Distribution").
A. Management Company shall defer receipt of the Incentive Fee, up to the
entire amount thereof, to the extent that the Owner's Distribution for any
Fiscal Year is less than the level annual debt service on the First Mortgage for
that Fiscal Year, and the amount so deferred shall be distributed to Owner.
B. In addition, Management Company shall defer receipt of the portion of
its Incentive Fee in excess of [ ] thereof, to the extent that the
Owner's Distribution for [ ] Fiscal Year (less the debt service on the First
Mortgage for that Fiscal Year) is less than an amount equal to an equity return
to Owner of [ ] per annum on the Owner's Equity.
C. That portion of the Incentive Fee in any Fiscal Year which is deferred
pursuant to either subsection A or subsection B above shall be paid in
subsequent Fiscal Years from the first available excess of Owner's Distribution
in any such subsequent Fiscal Year over the sum of: (1) the debt service on the
First
16
<PAGE>
Mortgage for such subsequent Fiscal Year, (ii) an amount equal to an equity
return to Owner for such subsequent Fiscal Year of [ ] per annum on
the Owner's Equity, and (iii) the Incentive Fee for such subsequent Fiscal Year.
Notwithstanding the foregoing, no deferred portion of the Incentive Fee shall be
paid pursuant to this subsection C (and any such deferred Incentive Fee shall be
permanently waived) if not paid pursuant to the foregoing provisions on or
before the end of the third Fiscal Year from the Fiscal Year with respect to
which it was deferred. Payments made pursuant to this subsection C shall be
credited first against the earliest portions of deferred Incentive Fee.
5.02 Accounting and Interim Payment
------------------------------
A. Within [ ] lays after the close of each Accounting Period, the
Management Company shall submit an interim accounting to Owner showing Gross
Revenues and Deductions, Operating Profit and distributions thereof. The
Management Company shall transfer to Owner with each accounting any interim
amounts of Owner's Distribution and shall retain any interim Incentive Fee due
the Management Company.
B. Calculations and payments of the Incentive Fee and distributions of
Operating Profit made with respect to each Accounting Period within a Fiscal
Year shall be accounted for cumulatively for that year, with the deferrals, if
any, provided for in Section 5.01. Within [ ] days after the close
of each Fiscal Year, the Management Company shall submit an accounting, as more
fully described in Section 9.01, for such Fiscal Year to Owner, which accounting
shall be controlling over
17
<PAGE>
the interim accountings. Any adjustments required by the Fiscal Year accounting
shall be made promptly by the parties. No adjustment shall be made for any
Operating Loss or other insufficiencies in a preceding or subsequent Fiscal
Year.
END OF ARTICLE V
18
<PAGE>
ARTICLE VI
PRE-OPENING
-----------
6.01 Description
-----------
It is recognized that certain activities must be undertaken at an early
stage so that the Hotel can function in an appropriate and orderly manner on the
Opening Date and during the first Fiscal Year. Accordingly, the Management
Company shall:
A. Recruit, train and employ the staff required for the Hotel;
B. Negotiate concession contracts for stores, office space and lobby space
(each of such contracts to be subject to the approval of Owner, which shall not
be unreasonably withheld);
C. Undertake pre-opening promotion and advertising, including opening
celebrations;
D. Test the operations of the Hotel;
E. Provide, for a period to end not later than days from Opening
Date, a task force of experts and personnel to supervise and assist with certain
pre-opening and opening operation
F. Apply for, and use its best efforts to obtain, the initial licenses
(including, without limitation, any necessary liquor licenses) and permits
required for the operation of the Hotel as contemplated by this Agreement;
G. In general, render such other miscellaneous services incidental to the
preparation and organization of the Hotel's operations as may be required for
the Hotel to be adequately staffed and capable of operating on the Opening Date
and during the first Fiscal Year.
19
<PAGE>
6.02 Pre-Opening Expenses
--------------------
A. The expenses relating to such activities ("Pre-Opening Expenses") shall
include, but not be limited to, salaries and wages (including those of personnel
of the Management Company and its affiliated companies), costs of interim office
space, professional fees, telephone expenses, staff hiring and training costs,
travel and moving expenses, costs of opening celebrations, the cost of beat,
light and power not chargeable to the cost of constructing the Hotel,
advertising and promotion expense, and miscellaneous expenses. Except as
otherwise specifically provided in subsection B hereof, all Pre-Opening Expenses
shall be borne exclusively by Management Company and shall not be reimbursed by
Owner or treated as a deduction from Operating Profit.
B. Management Company's present estimate, as of the date hereof, of the
total amount of Pre-Opening Expenses for the Hotel
is [ ] Said amount shall
hereinafter be referred to as the "Present Estimate." A detailed budget shall
be prepared by Management Company and forwarded to Owner, at least [ ]
months prior to the Opening Date, outlining the expenditures which are included
within the Present Estimate. Management Company shall have the right, in
response to changes in circumstances, or delays in the opening of the Hotel, or
both, to alter or modify (either increasing or decreasing) the Present Estimate.
In the event Management Company determines that the Pre-Opening Expenses shall
be greater or less than the Present Estimate, a revised budget shall be prepared
and forwarded to Owner at the time of
20
<PAGE>
such determination. As a part of the annual accounting for the first Fiscal
Year after the Opening Date: 1) an amount equal to [ ] of the
amount by which the actual Pre-Opening Expenses.exceed the Present Estimate
(provided Owner has approved, in writing in advance, the expenditure of said
excess) shall be (i) subtracted from the Owner's Distribution, and (ii) added to
the Incentive Fee; or 2) an amount equal to [ ] of the amount by which
the Present Estimate exceeds the actual Pre-Opening Expenses incurred shall be
(i) subtracted from the Incentive Fee, and (ii) added to the Owner's
Distribution. Appropriate adjustments shall be made to reflect the foregoing
sentence if necessary. If Owner fails to approve said revised estimate,
Management Company shall pay the full cost of all Pre-Opening Expenses (as
revised) which are incurred; however, Management Company shall be under no
obligation to expend a specified minimum amount on Pre-Opening Expenses. In the
event the Opening Date is delayed or postponed from the original date
established therefor, Management Company shall be entitled to the adjustment
referred to in subsection B (1) above with respect to any increases in Pre-
Opening Expenses occasioned by such delay or postponement regardless of Owner
approval or non-approval of such increases.
END OF ARTICLE VI
21
<PAGE>
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital
----------------
A. Subject to subsection B hereof, Owner shall, prior to the Opening Date,
provide the cash necessary for the Hotel to establish a normal Working Capital
level after commencing operations, in view of the volume of monthly sales
projected for the initial months of operations, as reasonably and in good faith
determined by Management Company. Owner shall from time to time thereafter
promptly advance, upon request of the Management Company, additional cash in the
amount by which the necessary Working Capital level exceeds the original Working
Capital level, as reasonably and in good faith determined by the Management
Company in view of the volume of the monthly sales then being experienced by the
Hotel; provided that, to the extent the Hotel has suffered an Operating Loss,
any request for additional Working Capital shall be regarded as a request to
fund an Operating Loss, and such request shall be handled exclusively under the
provisions of Section 9.04. Working Capital so advanced shall remain the
property of Owner throughout the term of this Agreement. Upon Termination,
Owner shall retain any of its unused Working Capital except for Inventories
purchased by the Management Company pursuant to Section 10.02. Management
Company shall continuously review the level of Working Capital, and if
Management Company reasonably and in good faith determines that reductions in
the level of Working Capital are appropriate, the amount of such reduction shall
be refunded to owner.
B. Owner and Management Company hereby agree that, provided
22
<PAGE>
the Opening Date occurs during 1981, the initial level of Working Capital will
be no more than [ ]
7.02 Fixed Asset Supplies
--------------------
Owner shall provide the funds necessary to initially supply the Hotel with
Fixed Asset Supplies at levels which shall be appropriate under normal hotel
industry standards. Replacements of Fixed Asset Supplies throughout the term of
this Agreement shall be from Gross Revenues. Fixed Asset Supplies shall remain
the property of Owner throughout the term of this Agreement and upon
Termination, except such Supplies as are purchased by the Management Company
pursuant to Section 10.02.
END OF ARTICLE VII
23
<PAGE>
ARTICLE VIII
MAINTENANCE, REPLACEMENT AND CHANGES
------------------------------------
8.01 Routine Repairs and Maintenance
-------------------------------
The Management Company shall maintain the Hotel in a neat, clean and
sanitary condition, in good repair, consistent with the standards of other
Marriott hotels, and in conformity with applicable laws and regulations, and
shall make or cause to be made such routine maintenance, repairs and minor
alterations, the cost of which can be expensed under generally accepted
accounting principles, as it, from time to time, deems necessary for such
purposes. Management Company shall not operate the Hotel in any manner which
would result in the cancellation of the property or liability insurance
described in Article XII. The cost of such maintenance, repairs and alterations
shall be paid from Gross Revenues and shall be treated as a Deduction in
determining Operating Profit. The cost of non-routine repairs and maintenance
(which are not expensed for purposes of the financial statements relating to the
Hotel), either to the Hotel building or its fixtures, furniture, furnishings and
equipment ("FF&E") shall be paid for in the manner described in Sections 8.02
and 8.03.
8.02 Repairs and Equipment Reserve
-----------------------------
A. The Management Company shall establish, in respect of each Fiscal Year
during the term of this Agreement, a reserve account on the Hotel's books of
account ("Repairs and Equipment Reserve" or the "Reserve") to cover the
expenditures for:
1. Replacements and renewals to the Hotel's FF&E;
24
<PAGE>
2. Exterior and interior repainting, resurfacing building walls,
floors, roofs and parking areas, and replacing folding walls; and
3. All other non-routine repairs (which are not expensed for purposes
of the financial statements of the Hotel), renewals and replacements to the
(without limitation) structural, electrical, beating, ventilating, air-
conditioning, plumbing and vertical transportation elements of the Hotel
building, to the extent that there are funds available in the Reserve after
covering the costs of categories 1 and 2 above.
B. During the first Fiscal Year after the Opening Date, an amount equal to
[ ] percent [ ] of the Hotel's Gross Revenues for such Fiscal Year shall be
placed in the Reserve; during the second Fiscal Year after the Opening Date,,an
amount equal to
[ ] percent [ ] of the Hotel's Gross Revenues for such Fiscal Year shall be
placed in the Reserve; during the third, fourth and fifth Fiscal Years after the
Opening Date, an amount equal to [ ] percent [ ] of the Hotel's Gross Revenues
for each of such Fiscal Years shall be placed in the Reserve; during the sixth
through the tenth Fiscal Years after the Opening Date, an amount equal to [ ]
percent [ ] of the Hotel's Gross Revenues for each of such Fiscal Years shall
be placed in the Reserve; commencing with the eleventh Fiscal Year after the
Opening Date and for all Fiscal Years thereafter, subject to the provisions of
G, below, annual deductions for the Repairs and Equipment Reserve shall be an
amount equal [ ] percent [ ] of Gross Revenues.
C. The Reserve will be maintained in an escrow account set up in the name
of the Owner. All interest accruing on any funds
25
<PAGE>
deposited in said account will be credited to the Reserve, and the amount that
would otherwise be transferred to the Reserve shall be reduced by the amount so
credited. If, at any time, the accumulated cash left in the Reserve exceeds the
sum of the contributions made to it during the two (2) preceding Fiscal Years,
further contributions will be temporarily suspended until they can be made
without causing the accumulated cash in the Reserve to exceed said limit. Any
amounts remaining in the Repairs and Equipment Reserve upon Termination shall be
transferred to Owner, unless the operation of the Hotel is being discontinued at
the same or approximately the same time as such Termination, in which event the
amount remaining in the Repairs and Equipment Reserve shall be transferred to
Operating Profit.
D. Owner shall have the right to withdraw any amounts accumulated in the
Reserve by delivery to Management Company of an irrevocable letter of credit
from a responsible banking institution approved by Management Company (such
approval not to be unreasonably withheld or delayed) covering the full amount of
such withdrawal. At least one (1) month prior to the expiration of any such
letter of credit, Owner shall either provide a new letter of credit, or make a
cash deposit into the Reserve escrow account equal to the amount previously
withdrawn, or advise Management Company to exercise its rights under the letter
of credit. The terms of any such letter of credit will in any event provide
that Management Company shall have the right, at any time, in order to pay for
expenditures properly chargeable to the Reserve, to present said letter of
credit for immediate payment. Any amounts withdrawn by Owner from the Repairs
and Equipment
26
<PAGE>
Reserve pursuant to the foregoing procedure shall be deemed, for purposes of the
maximum limitation on accumulated cash in the Reserve set forth in subsection C
above, to have not been so withdrawn.
E. The Management Company shall from time to time make such substitutions
and replacements or renewals to FF&E and repairs to the Hotel building of the
nature described in Sections 8.02 A 2 and 8.02 A 3 as it deems necessary, up to
the balance in the Repairs and Equipment Reserve. No expenditure will be made
in excess of said balance without the approval of Owner. Any proceeds from the
sale of FF&E no longer necessary to the operation of the Hotel shall be credited
to the Repairs and Equipment Reserve, and the amount that would otherwise be
transferred to the Reserve shall be reduced by the amount so credited. At the
end of each Fiscal Year, any amounts remaining in the Repairs and Equipment
Reserve shall be carried forward to the next Fiscal Year.
F. The Management Company shall prepare a detailed budget ("Repairs and
Equipment Budget") of the expenditures necessary for replacements and renewals
of FF&E and expenditures of the nature contemplated by Sections 8.02 A 2 and
8.02 A 3 during the ensuing Fiscal Year and shall submit such Repairs and
Equipment Budget to Owner at the same time it submits the Annual Operating
Projection described in Section 9.03. Owner shall have the right to approve
(said approval not to be unreasonably withheld) all expenditures described in
the Repairs and Equipment Budget except for certain items to be selected by
Management Company (not to exceed in the aggregate the greater of [ ] or
[ ] of the
27
<PAGE>
estimated amount to be contributed to the Reserve in the applicable Fiscal
Year), as to which the Management Company's selection shall not be subject to
the approval of Owner.If Owner disapproves any item or items within the Repairs
and Equipment Budget, it shall be obligated to recommend alternative
expenditures in an equal aggregate dollar amount for that particular Fiscal
Year. In the event the Management Company fails to accept Owner's
recommendations as to alternative expenditures, the items in dispute on the
Repairs and Equipment Budget will be submitted to a recognized hotel accounting
firm for resolution, in keeping with the need to maintain the position of the
Hotel in its geographical market and as a member of the Marriott chain of
hotels. Such firm shall be jointly selected by Owner and Management Company
(neither such approval to be unreasonably withheld). Such accounting firm's
decision on such matters will be binding on the parties, and the expenses
incurred for such firm's analysis and determination will constitute a Deduction
for the Fiscal Year in which they are paid.
G. The adequacy of the percentage Deduction for the Repairs and Equipment
Reserve described in Section 8.02 A is an estimate based upon the Management
Company's prior experience with new hotels. If, in good faith, Management
Company feels at any time during the term of this Agreement that such
percentages have become excessive given the needs of the Hotel, such percentages
will be reduced. On the other hand, as the Hotel ages, these percentage
Deductions may not be sufficient, in the good faith belief of Management
Company, to keep the Reserve at the levels necessary to make the replacements,
substitutions and renewals to
28
<PAGE>
the FF&E or to otherwise make the appropriate building repairs required to
maintain the Hotel as a first-class facility. If the Repairs and Equipment
Estimate prepared in good faith by the Management Company exceeds the available
funds in the Repairs and Equipment Reserve, Owner will in good faith consider
reasonable proposals made by the Management Company, in keeping with the need to
maintain the position of the Hotel in its competitive geographical market and as
a member of the Marriott chain.
8.03 Building Renewals and Replacements
----------------------------------
A. The Management Company may prepare a supplemental annual estimate of
the expenditures necessary for major repairs (which are not expensed for
purposes of the financial statements of the Hotel), renewals and replacements
[which repairs, renewals and replacements (with identical or comparable items)
are not included within category 3 listed in Section 8.02 A only because such
items exceed the cash in the Reserve] to the structural, electrical, central
heating, central ventilating, central air conditioning, plumbing and vertical
transportation elements of the Hotel building ("Building Estimate") and shall
submit such Estimate to Owner for its approval at the same time the Annual
Operating Projection is submitted. The phrase "major repairs, renewals and
replacements" shall mean any such single item of repair, renewal or replacement
having a cost in excess of [ ] percent [ ] of the amounts contributed to the
Reserve during the Fiscal Year in which the expenditure is made. The Management
Company shall not make any expenditures for such purposes without the prior
written consent of Owner, which consent shall not be unreasonably withheld;
provided, however, that if such major
29
<PAGE>
repairs, renewals or replacements to the Hotel are required by reason of any
law, ordinance, regulation or order of a competent government authority, or are
otherwise required for the continued safe and orderly operation of the Hotel,
the Management Company shall immediately give Owner notice thereof and shall be
authorized to take appropriate remedial action without such approval if Owner
does not act. The cost of all such repairs, renewals, or replacements which are
not otherwise paid for from the Repairs and Equipment Reserve described in
Section 8.02 shall be borne solely by Owner. Notwithstanding the provisions of.
this Section 8.03 A, Management Company will use its best efforts to have the
expenditures set forth in any Building Estimate paid in whole or in part (to the
extent possible) from the Reserve.
B. If, upon submission of the Building Estimate to Owner, the parties fail
to reach agreement on the matters proposed therein, the items in dispute will be
submitted to a recognized hotel accounting firm for resolution, in keeping with
the need to maintain the position of the Hotel in its geographical market and as
a member of the Marriott chain of hotels. Such firm shall be jointly selected
by Owner and Management Company (neither such approval to be unreasonably
withheld). Such accounting firm's decision on such matters will (except as
indicated in the next sentence) be binding on the parties, and the expenses
incurred for such firm's analysis and determination will constitute a Deduction
for the Fiscal Year in which they are paid. In the event the decision of such
accounting firm is that certain enumerated expenditures should be made, Owner
shall not be under the obligation to make such expenditures; however, if Owner
30
<PAGE>
refuses or fails to make such expenditures within a reasonable period of time,
Management Company shall be entitled to terminate this Agreement on [
] days notice to Owner.
8.04 Liens
-----
The Management Company and Owner shall use their best efforts to prevent
any liens from being filed against the Hotel which arise from any maintenance,
changes, repairs, alterations, improvements, renewals or replacements in or to
the Hotel. They shall cooperate fully in obtaining the release of any such
liens, and the cost thereof, if the lien was not occasioned by the fault of
either party, shall be treated the same as the costs incurred pursuant to
Section 8.03. If the lien arises as a result of the fault of either party, then
the party at fault shall bear the cost of obtaining the lien release.
8.05 Ownership of Replacements
-------------------------
All changes, repairs, alterations, improvements, renewals or replacements
made pursuant to this Article VIII shall be the property of Owner.
8.06 Building Alterations and Improvements
-------------------------------------
Changes, alterations or improvements to the building structure of the Hotel
(such as, without limitation, additional guest-rooms or sport facilities) which
are not repairs, renewals or replacements of the Hotel as it exists on the date
hereof, shall be undertaken with the consent of both parties. The provisions of
Section 8.03 shall not apply to such expenditures.
END OF ARTICLE VIII
31
<PAGE>
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
Management Company shall keep and maintain full and accurate books of
control and account in connection with the operation of the Hotel; such books
and records shall be kept on the accrual basis and in material respects in
accordance with the Uniform System of Accounts, with the exceptions provided in
this Agreement. The books and records for the Hotel shall be kept conveniently
separated from books and records relating to other hotels which Management
Company operates. Owner may at reasonable intervals during the Management
Company's normal business hours examine such books and records. Within [
] days following the close of each Fiscal Year, the Management Company shall
furnish Owner a statement in reasonable detail summarizing the Hotel operations
for such Fiscal Year and a certificate of the Management Company's chief
accounting officer certifying that such year-end statement is true and correct.
Owner shall have [ ] years from the receipt thereof to audit, examine,
or review said statement and the supporting books and records. If Owner raises
no objections within said [ ] year period, the statement shall be deemed
to have been accepted by Owner as true and correct, and Owner shall have no
further right to question its accuracy. In the event that such a subsequent
audit establishes that the amount of Operating Profit set forth therein is
erroneous by a margin of at least [ ] percent [ ] thereof, Management
Company shall reimburse Owner for the reasonable costs of such audit. The
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<PAGE>
rights of Owner with regard to subsequent audits of financial statements (and
with regard to reimbursement of the costs thereof), as set forth above, shall
survive a Termination.
9.02 Hotel Accounts, Expenditures
----------------------------
A. All funds derived from the operation of the Hotel, or paid to
Management Company by Owner in connection with this Agreement (except for the
Incentive Fee or any reimbursement of Management Company pursuant to Sections
2.01 G 7 or 11.03) shall be promptly deposited by the Management Company in
Hotel bank accounts in one or more banks selected by Owner and approved by the
Management Company (said approval not to be unreasonably withheld). Withdrawals
from said accounts shall be made by representatives of the Management Company
whose signatures have been authorized. Reasonable petty cash funds shall be
maintained at the Hotel.
B. All payments to be made by the Management Company hereunder shall be
made from authorized bank accounts, petty cash funds, or from Working Capital
provided by Owner pursuant to this Agreement. The Management Company shall not
be required to make any advance or payment to or for the account of Owner except
out of such funds, and the Management Company shall not be obligated to incur
any liability or obligation for Owner's account without assurances that
necessary funds for the discharge thereof will be provided by Owner. Owner
shall protect, indemnify and hold the Management Company harmless from and
against all third party claims and charges arising as a result of the Management
Company's actions hereunder whether such claims and expenses (including, without
limitation, legal fees) are made before or
33
<PAGE>
after Termination; that the foregoing indemnification by Owner shall not be
applicable with respect to claims or expenses (including, without limitation,
legal fees) which (i) arise from the gross negligence or intentionally wrongful
acts of Management Company or its agents or employees or from material breaches
of this Agreement by Management Company, or its agents or employees, and (ii)
are neither insured nor within any deductible limits or self-insured retentions
as described in Article XII hereof; but rather, in such event, Management
Company shall protect, indemnify and hold Owner harmless from and against all
third party claims or expenses arising therefrom. Nothing contained herein
shall be construed as creating any rights on the part of parties other than
Owner or Management Company against either of the parties hereto.
9.03 Annual Operating Projection
---------------------------
The Management Company shall submit to Owner for its review [ ]
days prior to the beginning of each Fiscal Year after the Opening Date a
proposed "Annual Operating Projection" (the "Projection"). Such Projection
shall set forth estimated Gross Revenues, department revenues and expenses,
Deductions and Operating Profit for the forthcoming Fiscal Year for the Hotel,
for each Accounting Period in such Fiscal Year, furnishing at least as much
detail as is set forth in Exhibit B. (The Management Company represents and
warrants that Exhibit B is as detailed as the budgets used by the Management
Company for hotels owned by the Management Company.) The Management Company
shall consult in good faith with the representatives of Owner concerning the
Projection in the [ ] days after Owner's
34
<PAGE>
receipt of the Projection. The Management Company shall, after such
consultations, submit to Owner within [ ] days after the expiration of
such period of [ ] days an appropriate final Projection. Except for
special circumstances, the amounts of the individual line items of the
Projection and the total Projection shall be consistent with those of the other
first-class hotels managed by the Management Company. For any line items that,
because of special circumstances, are not in amounts consistent with those of
such other hotels, the Management Company shall furnish to Owner, in writing, at
the time the final Projection is furnished to Owner, the rationale for such
variance. In any event, the final Projection shall be prepared in good faith,
shall set forth reasonable amounts, individually and in total, and shall be
based on, among other things, the Management Company's best estimates, for Owner
to rely upon, concerning expected operations for the subject Fiscal Year. The
expenditures by the Management Company in the operation of the Hotel during each
Fiscal Year shall conform substantially to the Annual Operating Projection for
such Fiscal Year; provided that, if unforeseen circumstances such as, but not
limited to, unusual changes in the costs of labor, material, services and
supplies, casualties, operation of law and economic or market conditions make
adherence to the Projection impracticable, the Management Company may depart
therefrom to the extent necessary. If the Management Company departs from or
intends to depart from a Projection previously submitted to Owner, the
Management Company shall promptly submit to Owner an appropriately revised
Projection.
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<PAGE>
9.04 Operating Deficits: Credit
--------------------------
A. Except to the extent specifically provided in subsection B hereof, to
the extent there is an Operating Loss, additional funds in the amount of any
such deficiency shall be provided by Owner within [ ] days after the
Management Company has given written notice to Owner of such Operating Loss.
B. Owner shall be under no obligation to honor any request for additional
funds to cover Operating Losses to the extent such, request, when added to all
previous amounts provided by Owner pursuant to Section 9.04 A, would result in a
total cumulative amount in excess of [ ]. In the
event Owner fails to honor such a request pursuant to the foregoing sentence,
Management Company shall have the right to either: (i) terminate this Agreement,
by written notice to Owner, to be given no later than [ ] days
after the receipt of written notice from Owner of its refusal to honor the
request, and to be effective on a date set forth therein, no earlier than [
] days from the date of said notice; or (ii) to lend to Owner, on a non-
interest-bearing basis, the amount of such deficiency. Any such loan shall be
made within [ ] days of receipt of written confirmation from Owner of
its refusal to honor such request, and shall otherwise be on the same terms and
conditions as the loans described in Section 4.02 B.
C. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
36
<PAGE>
ARTICLE X
TRADEMARK AND TRADE NAME
------------------------
10.01 [ ] Name
-------------------
During the term of this Agreement, the Hotel shall be known as the [
] The name of the Hotel shall not be expanded or altered during the term of
this Agreement. If the name of the [ ] hotel system is changed, the
Management Company shall have the right to change the name of the Hotel to
conform thereto (provided that the name used shall in all events be the name
employed by Management Company in operating the other first-class facilities
within its chain).
The name [ ] when used alone or in connection with another word
or words and the [ ] trademarks or trade names or designs shall in
all events remain the exclusive property of [ ] and nothing
contained herein shall confer on Owner the right to use such name, trademarks
and trade names otherwise than in strict accordance with the terms of this
Agreement. Except as provided in Section 10.02, upon Termination, any use or
right to use said name, trademarks and trade names by Owner shall cease
forthwith and Owner shall promptly remove from the Hotel any signs or similar
items which contain the C name, trademark, trade names, logos, symbols or
designs.
10.02 Purchase of Inventories and Fixed Asset Supplies.
-------------------------------------------------
Upon Termination, the Management Company shall purchase, within [
] days after Termination, at their then book value, any items of the Hotel's
Inventories and Fixed Asset Supplies as may be marked with the [ ] name
or any [
37
<PAGE>
] trade name, trademark, symbol, logo or design. In the event that Owner and
Management Company mutually agree that certain items will not be so purchased,
Owner covenants that any such items not so purchased shall be used exclusively
in connection with the Hotel until they are consumed.
10.03 Breach of Covenant
------------------
The Management Company and/or its affiliated companies shall be entitled,
in case of any breach of the covenants of Article X by Owner or others claiming
through it, to injunctive relief and to any other right or remedy available at
law. Article X shall survive Termination.
END OF ARTICLE X
38
<PAGE>
ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Owner covenants that so long as the Management Company is not in default
under this Agreement, the Management Company shall quietly hold, occupy and
enjoy the Hotel throughout the term hereof free from hindrance, ejection or
molestation by Owner or other party claiming under, through or by right of
Owner. Owner agrees to pay and discharge any payments and charges and, at its
expense, to prosecute all appropriate actions, judicial or otherwise, necessary
to assure such free and quiet occupation.
11.02 Use
---
A. The Management Company shall use the Hotel solely for the operation of
a hotel under standards comparable to those prevailing in the modern, first-
class hotels in the [ ] hotel system and for all activities in connection
therewith which are customary and usual to such an operation, and shall not
knowingly permit the use of the Hotel for disorderly or unlawful purposes. The
Management Company agrees to diligently operate the Hotel in a good and
workmanlike manner. The Management Company, in any event, shall comply with and
abide by all applicable laws and regulations, and shall use its best efforts to
keep in force at all times all licenses, governmental approvals, certificates
and permits which are necessary for such operation.
B. Management Company shall, to the extent available from Gross Revenues,
pay all of the expenses of the Hotel listed as Deductions in Section 2.01 G, to
include, without limitation: (i)
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<PAGE>
all charges for electricity, gas, water, sewer usage and other utilities; and
(ii) all wages, salaries, fringe benefits, payroll taxes and other costs related
to Hotel employees.
C. Management Company shall not demolish, remove or tear down any
structural components of the Hotel, or items of heavy equipment not funded from
the Reserve described in Section 8.02, without Owner's prior written consent.
D. On Termination of this Agreement, for whatever reason, Management
Company will surrender the Hotel to Owner broom-clean and in good condition
(reasonable wear and tear, as well as the effects of a casualty under Section
15.01, excepted). All information and deposits relating to reservations booked
prior to Termination, for periods of time after Termination, will be delivered
to Owner's representatives.
11.03 Chain Services
--------------
A. The Management Company shall cause to be furnished to the Hotel certain
services ("Chain Services") which are furnished generally on a central or
regional basis to other hotels in the [ ] chain and which benefit each
hotel as a participant in
the [ ] chain. Chain Services shall include (i) national sales office
services, central training services (including management relocation expenses),
central advertising and promotion (including direct and image media and
advertising administration), the [ ] national reservations system and
the [ ] computer payroll and accounting services; and (ii) such
additional central or regional services as may from time to time be furnished
for the benefit of the hotels in the [ ] chain or in substitution for
services now performed at
40
<PAGE>
individual hotels which may be more efficiently performed on a group basis.
Costs and expenses incurred in the providing of such services shall be allocated
on a fair and equitable basis among all [ ] hotels in the United
States receiving the same. The basis of the allocation for such services for
the Hotel shall be explained in reasonable detail when the Management Company
submits the annual statement described in Section 9.01. The charge for Chain
Services allocable to all of the foregoing, exclusive of individual charges for
[ ] reservations, shall not exceed [ ] percent of Gross
Revenues without Owner's written consent. No services contemplated in
subparagraph (ii) above shall be charged to the Hotel without the Management
Company's demonstrating to Owner's satisfaction that the providing of such
services on a national or group basis will be of benefit to the Hotel and will
reduce the cost of operating the Hotel. Neither Management Company nor any of
its affiliates shall make any profit on Chain Services.
B. The Management Company covenants that such services and the charges
therefor are uniformly provided and charged to all hotels which it operates,
manages or leases in the United States other than franchised hotels (which,
while operated under the Marriott name, are not operated by the Management
Company as such) and the now existing [ ] hotels located in [
] and the proposed hotel to be developed on [ ]
Except with respect to those hotels described in the preceding sentence, the
Management Company shall not provide Chain Services to any hotels receiving the
same (either currently or in the future) on terms and conditions more
41
<PAGE>
favorable than set forth in this Agreement without making such more favorable
terms and conditions available to Owner. If in the future substantially the
same Chain Services are offered to franchised hotels, the foregoing. exception
with respect to franchised hotels shall no longer continue to apply.
11.04 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to the Hotel at any and all
reasonable times for the purpose of protecting the same against fire or other
casualty, prevention of damage to the Hotel, inspection, making repairs, or
showing the Hotel to prospective purchasers, tenants or mortgagees.
END OF ARTICLE XI
42
<PAGE>
ARTICLE XII
INSURANCE
---------
12.01 Interim Insurance
-----------------
Owner shall, at its expense, at all times during the period of
construction, furnishing and equipping of the Hotel, procure and maintain
adequate public liability and indemnity and property insurance (with limits and
coverage to be mutually agreed upon) protecting Owner and the Management Company
against loss or damage arising in connection with the preparation, construction,
furnishing and equipping of the Hotel and pre-opening activities.
12.02 Property Insurance
------------------
A. The Management Company shall, commencing with the Opening Date and
during the term of this Agreement, procure and maintain, at Owner's expense and
with Owner's approval of all relevant aspects of the insurance program
(including the companies used, the rates, the deductibles and the coverage; such
approval will not be unreasonably withheld or delayed), property insurance
adequate to meet the needs of the Hotel, but in any event a minimum of the
following coverage:
1. Insurance on the Hotel (including contents) against loss or damage
by fire and lightning and all other risks covered by the usual standard extended
coverage endorsements with deductible limits established by the Management
Company at other hotels it leases or manages under the Marriott name in the
United States, all in amounts not less than either [ ] percent [
] of the replacement cost thereof, or (if higher) that amount which is
sufficient so that Owner will in no event be a co-insurer on any claim.
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<PAGE>
2. Insurance against loss or damage from explosion of boilers,
pressure vessels, pressure pipes and sprinklers, to the extent applicable,
installed in the Hotel.
3. Business interruption insurance covering loss of profits and
necessary continuing expenses for interruptions caused by any occurrence covered
by the insurance referred to in Section 12-02 A 1 and 2 of a type and in amounts
generally prevailing and with deductible limits established by the Management
Company at other hotels it leases or manages under the Marriott name in the
United States.
B. All policies of insurance required under Section 12.02 A 1, 2, and 3
shall be carried in the name of Owner, the Management Company, and any mortgagee
designated by Owner; any losses thereunder shall be payable to the parties as
their respective interests may appear.
C. Any mortgage on the Hotel shall contain provisions to the effect that
proceeds of the insurance policies required to be carried under Section 12.02
shall be available for repair and restoration of the Hotel, except in the event
of the substantial destruction of the Hotel.
12.03 Operational Insurance
---------------------
The Management Company shall, commencing with the Opening Date and during
the term of this Agreement, procure and maintain, at Owner's expense and with
Owner's approval of all relevant aspects of the insurance program (including the
companies used, the rates, the deductibles and the coverage; such approval will
not be unreasonably withheld or delayed), operational insurance
44
<PAGE>
adequate to meet the needs of the Hotel, but in any event a minimum of the
following coverage:
A. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all the Management Company's employees
at the Hotel, with such deductible limits or self-insured retentions established
by the Management Company as are used at other hotels it leases or manages under
the Marriott name in the United States;
B. Fidelity bonds covering Management Company's employees in job
classifications normally bonded in other hotels it leases or manages under the
Marriott name in the United States or otherwise required by law, and
comprehensive crime insurance to the extent that the Management Company and
Owner mutually agree it is necessary for the Hotel;
C. Comprehensive general public liability insurance against claims for
bodily injury, death or property damage occurring on, in, or about the Hotel,
and automobile insurance on vehicles operated in conjunction with the Hotel,
with a combined single limit of not less [ ] for
each occurrence for personal injury and death and property damage, with
deductible limits or self-insured retentions established by the Management
Company as are used by the Management Company at other hotels it leases or
manages under the [ ] name in the United States;
D. Such other insurance in amounts as the Management Company or the Owner
in its reasonable judgment deems advisable for its protection against claims,
liabilities and losses arising out of or connected with its performance under
this Agreement.
45
<PAGE>
12-04 Coverage
--------
A. All insurance described in Sections 12.02 and 12.03 may be obtained by
the Management Company by endorsement or equivalent means under its blanket
insurance policies, provided that such blanket policies substantially fulfill
the requirements specified herein.
B. The Management Company may elect (subject to the approval of Owner,
such approval not to be unreasonably withheld) to self-insure or otherwise
retain such risks or portions thereof as it does with respect to other hotels it
leases or manages under the Marriott name in the United States. Under this
self-insurance program: (i) all claims and losses up to the amount of the
deductible limits established pursuant to the applicable provisions of Sections
12.02 and 12.03 above shall be referred to as "self-insured retentions" and
shall be charged against the Gross Revenues of the Hotel; and (ii) claims and
losses which are in excess of said self-insured retentions, but within said
self-insurance program, shall be paid directly by the Management Company. The
Management Company shall be reimbursed for the allocable cost of maintaining
said self-insurance program, as described in (ii) of the preceding sentence,
based on the aggregate cost of maintaining such self-insurance among all of the
hotels within the Management Company's self-insurance program, allocated on a
fair and equitable able basis (which it shall fully explain to Owner) among all
of said hotels. In the event the Management Company's self-insurance program,
as set forth above, is approved and placed in operation, the Management Company
shall indemnify, hold harmless and defend Owner against
46
<PAGE>
all claims, losses, damages and other expenses (including, without limitation,
legal fees) against, or incurred by, Owner as to which such self-insurance is
applicable, except with respect to the self-insured retentions referred to
above. The mortgagee providing the first-lien permanent financing for the Hotel
shall in all events be named as an insured on all insurance policies obtained
pursuant to Section 12.02 and Section 12.03 C; as to said mortgagee, the
coverage thereunder shall not be affected or reduced by reason of such self-
insurance program, but shall be subject only to the deductible limits or self-
insured retentions which are established and approved as set forth above.
12.05 Cost and Expense
----------------
A. Insurance premiums and any costs or expenses with respect to the
insurance described in Section 12.02 or 12.03, including insurance reinsured by
a subsidiary of the Management Company, shall be Deductions in determining
Operating Profit. Premiums on policies for more than one year shall be charged
pro rata against Gross Revenues over the period of the policies. Any reserves,
losses, costs, damages or expenses which are uninsured (other than those which
are included within an approved self-insurance program pursuant to Section 12.04
and which are in excess of the "self-insured retentions") or fall within
deductible limits shall be treated as a cost of insurance and shall be a
Deduction in determining Operating Profit. Any refunds paid by insurance
companies relating to the Hotel shall be included in Operating Profit.
B. Upon Termination, Management Company shall, in its reasonable business
judgment, estimate the amount of the
47
<PAGE>
additional costs (aside from amounts covered by insurance) which are likely to
be incurred to settle all open worker's compensation and liability cases and to
pay contingent claims, based on the previous claims history of the Hotel,
including those within deductible limits or self-insured retentions, which are
pending as of Termination or which are made thereafter but which arose from
causes arising during the term of this Agreement. This amount shall be subject
to the joint approval of Owner and Management Company (neither such approval to
be unreasonably withheld), and shall be deposited by Owner in a special
interest-bearing escrow account to be established for such purposes. Owner
shall be liable for any costs or expenses incurred to resolve such claims and
cases in excess of the amount escrowed. Any amount so escrowed which (i) is in
excess of the amount eventually paid to the claimant or claimants, or (ii) has
not been paid to the respective claimant or claimants by the expiration of the
applicable statute of limitations, shall be promptly refunded to Owner.
C. In the event the parties cannot agree, within a reasonable period of
time not to exceed [ ] days, on the amount to be escrowed pursuant to
subsection B above, the items in dispute will be submitted to a recognized hotel
accounting firm for resolution. Such firm shall be jointly selected by Owner and
Management Company (neither such approval to be unreasonably withheld). Such
accounting firm's decision on such matters will be binding on the parties, and
the expenses incurred for such firm's analysis and determination will constitute
a Deduction for the Fiscal Year in which they are
48
<PAGE>
paid. In the event such expenses are paid after the close of the Fiscal Year
hereunder, the parties will, upon payment of such expenses, make the necessary
adjustments to the accounting for such final Fiscal Year.
12.06 Policies and Endorsements
-------------------------
A. Where permitted, all insurance provided for under Article XII shall
name the Management Company, Owner and any mortgagee of the Hotel designated by
Owner as co-insureds. The party procuring such insurance shall deliver to the
other party certificates of insurance with respect to all policies so procured,
including existing, additional and renewal policies and, in the case of
insurance about to expire, shall deliver certificates of insurance with respect
to the renewal policies not less than [ ] days prior to the respective
dates of expiration. In addition, each party hereto shall, upon written
request, deliver to the other party no later than [ ] days after the
receipt of such request a copy of the actual policy obtained by such party, such
copy to be certified as accurate by an authorized officer.
B. All policies of insurance provided for under Article XII shall, to the
extent obtainable, have attached thereto an endorsement that such policy shall
not be cancelled or materially changed without at least [ ] days prior written
notice to Owner, the Management Company and any mortgagees of the Hotel
designated by Owner.
C. Management Company shall furnish Owner with an annual report setting
forth all relevant details with respect to the
49
<PAGE>
insurance coverage for the Hotel. END OF ARTICLE XII
50
<PAGE>
ARTICLE XIII
TAXES
-----
13.01 Real Estate and Property Taxes
------------------------------
All real estate and ad valorem property taxes, assessments and similar
charges on or relating to the Hotel ("Impositions") during the term of this
Agreement shall be paid by Owner before any fine, penalty, or interest it added
thereto or lien placed upon the Hotel or this Agreement, unless payment thereof
is in good faith being contested. Owner shall, within the earlier of [
] days of payment or [ ] days following written demand by the
Management Company, furnish the Management Company with copies of official tax
bills and assessments and evidence of payment or contest thereof.
END OF ARTICLE XIII
51
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ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
The General Manager and such other Hotel personnel as the Management
Company may desire shall at all times be the employees of the Management
Company.
A. The Management Company shall have absolute discretion to hire, promote,
supervise, direct and train all employees at the Hotel, to fix their terms of
compensation and, generally, establish and maintain all policies relating to
employment.
B. The Management Company shall decide which, if any, of the Hotel's
employees shall reside at the Hotel, and shall be permitted to provide free
accommodations and amenities to its employees and representatives living at or
visiting the Hotel in connection with its management or operation.
Representatives of the Owner who are visiting the Hotel in connection with the
management or operation of the Hotel shall be provided rooms without charge. No
person shall otherwise be given gratuitous accommodations or services without
the prior joint approval of Owner and the Management Company except persons (not
employees or representatives of either Management Company or Owner) who are
normally provided same in accordance with the usual practices of the hotel and
travel industry.
C. At Termination, other than by reason of a default of the Management
Company hereunder, Owner shall reimburse the Management Company for all costs
and expenses incurred by the Management Company, such as reasonable severance
pay (other than with respect to departmental heads or managerial personnel),
52
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unemployment compensation and other employee liability costs, arising out of the
termination of the employment of the Management Company's employees at the Hotel
(but not costs attributable to the transfer of employees to another location).
END OF ARTICLE XIV
53
<PAGE>
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the term hereof, the Hotel is damaged or destroyed by fire,
casualty or other cause, Owner shall, at its cost and expense and with all
reasonable diligence, repair or replace the damaged or destroyed portion of the
Hotel to substantially the same condition as existed previously; provided that,
in the event the Hotel is destroyed to the extent of [ ] or
more of its total replacement cost, Owner shall, have the option to either
rebuild (as set forth above) or to terminate this Agreement. If the damage or
destruction occurs during the last [ ] years of the Initial Term or any
Renewal Term, Owner shall have the option to terminate this Agreement if the
Hotel is destroyed to the extent of [ ] or more of its total
replacement cost. To the extent available, proceeds from the insurance
described in Section 12.02 shall be applied to such repairs or replacements.
B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects the operation of the Hotel, and Owner is
required under Section 15.01 A to repair or replace said damaged or destroyed
portion of the Hotel, and Owner fails to promptly commence and complete the
repairing, rebuilding or replacement of the same so that the Hotel shall be
substantially the same as it was prior to such damage or destruction, the
Management Company may, at its option, elect to either undertake such work for
the account of Owner or terminate this Agreement upon [ ] days
written notice.
54
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15.02 Condemnation
------------
A. In the event all or substantially all of the Site on which the Hotel is
located shall be taken in any eminent domain, condemnation, compulsory
acquisition, or similar proceeding by any competent authority for any public or
quasi-public use or purpose, or by private purchase under threat thereof, this
Agreement shall terminate. Owner and the Management Company shall each have the
right to initiate such proceedings before the condemning authority as they deem
advisable to recover any damages to which they may be entitled.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 15.02 A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Hotel, this Agreement shall not terminate. However, so much of any award for
any such partial taking or condemnation shall be made available to the extent
necessary to render the Hotel equivalent to its condition prior to such event;
the balance of such award, if any, shall be fairly and equitably apportioned
between Owner and the Management Company in accordance with their respective
interests.
C. Management Company (in its capacity as operator of the Hotel, not its
capacity as partner in the Owner) shall have the right to make a claim or claims
for lost profits in connection with any taking described in this Section 15.02,
but not for any interest in the real estate comprising the Hotel and/or the Site
on which it is located.
15.03 Force Majeure
-------------
55
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If acts of God, acts of war, civil disturbance, governmental action,
including the revocation of any material license or permit necessary for the
operation contemplated in this Agreement, where such revocation is not due to
the Management Company's act or omission and is beyond the control of the
Management Company, shall have a significant adverse effect upon the operations
of the Hotel for a significant period of time, then the Management Company shall
be entitled to terminate this Agreement upon days' written notice from the date
of such event.
END OF ARTICLE XV
56
<PAGE>
ARTICLE XVI
DEFAULTS
--------
16.01 Defaults
--------
The following shall constitute events of default to the extent permitted by
law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party;
B. The consent to an involuntary petition in bankruptcy, the admission in
writing of its inability to pay its debts as they become due, or the failure to
vacate within [ ] days from the date of entry thereof of any
order approving an involuntary petition by either party;
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for any period of [ ] days;
D. The appointment of a receiver for all or any substantial portion of the
property of either party;
E. The failure of either party to make any payment to be made in
accordance with the terms hereof within [ ] days after written
notice, when such payment is due and payable; or
57
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F. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement, and the continuance of such default for a period of [ ]
days after notice of said failure. Upon the occurrence of any of such events of
default, the non-defaulting party may give to the defaulting party notice of
intention to terminate this Agreement for default after the expiration of a
period of [ ] days from the date of such notice, and upon the
expiration of such period, this Agreement shall terminate. If, however, upon
receipt of such notice, the defaulting party shall promptly and with all due
diligence (if such default is not susceptible of being cured within [
]) commence within [ ] days to cure the default, and complete such cure
within [ ] days of receipt of said notice, then such notice shall be
of no force and effect. The provisions of the immediately preceding sentence
shall not apply to subsections A through E of Section 16.01, to Section 3.01 B,
or to Section 20.01.
16.02 Remedies Cumulative
-------------------
The rights granted hereunder shall not be in substitution for, but shall be
in addition to, any and all rights and remedies available to the non-defaulting
party by reason of applicable provisions of law.
END OF ARTICLE XVI
58
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ARTICLE XVII
WAIVER AND INVALIDITY
---------------------
17.01 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement or to exercise any option, right or
remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
17.02 Partial Invalidity
------------------
In the event that any portion of this Agreement shall be declared invalid
by order, decree or judgment of a court, this Agreement shall be construed as if
such portion had not been inserted herein except when such construction would
operate as an undue hardship on the Management Company or Owner or constitute a
substantial deviation from the general intent and purpose of said parties as
reflected in this Agreement. END OF ARTICLE XVII
59
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ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
A. Neither party shall assign or transfer or permit the assignment or
transfer of this Agreement without the prior written consent of the other;
provided, however that the Management Company shall have the right, without such
consent, to (i) assign its interest in this Agreement to any of its affiliated
companies, and any such assignee shall be deemed to be the Management Company
for the purposes of this Agreement, and (ii) sublease shops or grant concessions
at the Hotel, provided that the terms of any such subleases or concessions shall
be subject to the approval of Owner (which approval shall not be unreasonably
withheld). Nothing contained herein shall prevent the conditional assignment of
this Agreement as security for any mortgage in connection with a loan extended
by a recognized institutional lending entity on the Hotel, nor the transfer of
this Agreement in connection with a merger or consolidation or a sale of all or
substantially all of the assets of either party or their respective affiliated
companies, nor the transfer of this Agreement in connection with a sale of the
Hotel under the terms of Section 19.01 hereof.
In the event of consent by either party to an assignment of this Agreement
by the other, no further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be made without such
consent pursuant to the terms of this Agreement.
60
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An assignment by either Owner or the Management Company of its interest in
this Agreement shall not relieve Owner or the Management Company, as the case
may be, from their respective obligations under this Agreement (except that
Owner shall be relieved of its obligations hereunder if the Hotel is sold
pursuant to Section 19.01 hereof), and shall inure to the benefit of, and be
binding upon, their respective successors or assigns.
B. The parties further recognize that Owner intends, and shall have the
right, to lease the Hotel to another party, subject to this Agreement. In
connection with the creation of such leasehold estate in the Hotel, the tenant
will be assigned all rights to Owner's Distribution. In addition, upon the
expiration of said leasehold estate, Owner intends, and shall have the right,
either to renew said lease or to execute a new lease to a different entity.
Management Company agrees that it will forward any amounts due to Owner
hereunder, as instructed by Owner pursuant to written notice, to any such tenant
designated by Owner. However, nothing contained in this Section 18.01 B shall
be construed as relieving Owner from its obligations under this Agreement.
END OF ARTICLE XVIII
61
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ARTICLE XIX
SALE OF HOTEL
-------------
19.01 Sale of Hotel
-------------
A. If Owner receives a bona fide written offer to purchase or lease the
Hotel (except as provided in Section 18.01 B) and desires to accept such offer,
Owner shall give written notice thereof to the Management Company stating the
name of the prospective purchaser or tenant, as the case may be, the price or
rental and the terms and conditions of such proposed sale or lease, together
with all other information which is requested by the Management Company and
reasonably available to Owner. Within [ ] days after the date of receipt
of such written notice from Owner, the Management Company shall elect, by
written notice to Owner, one of the following alternatives:
1. To consent to such sale or lease and to the assignment of this
Agreement to such purchaser or tenant, provided that concurrently with the
finalization thereof, the purchaser or tenant, as the case may be, shall, by
appropriate instrument, in form satisfactory to the Management Company, assume
all of Owner's obligations hereunder.
2. To terminate this Agreement by written notice to Owner, which notice
will set an effective date for such Termination, which shall be [ ]
months following the date of the giving of such notice, provided that the
Management Company shall have the right to change such effective date of
Termination to coincide with the date of the finalization of the proposed sale
or lease (said Termination shall take effect no later than the date of said
finalization of the proposed sale or lease). Said
62
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notice of Termination shall not be effective if such sale or lease is not
finalized. The Management Company can exercise this right of Termination if,
and only if, in its reasonable judgment: (a) such purchaser, or a partner or
principal shareholder or other principal of such purchaser, is a major hotel or
restaurant chain in competition with the Management Company; or (b) the
purchaser is not of adequate financial stature, given the obligations of the
Owner hereunder; or (c) such purchaser, or a partner or principal shareholder or
other principal of such purchaser, is of criminal reputation or background.
B. If the Management Company shall fail to elect either of said
alternatives within said [ ] day period, the same shall be conclusively
deemed to constitute an election and consent under subsection 1 above, and the
provisions thereof shall prevail as if the Management Company had in writing
consented thereto. Any proposed sale or lease of which notice has been given by
Owner to the Management Company hereunder must be finalized within [
] days following the giving of such notice. Failing such finalization, such
notice, and any response thereto given by the Management Company, shall be null
and void and all of the provisions of Section 19.01 A must again be compiled
with before Owner shall have the right to finalize a sale or lease of the Hotel
upon the terms contained in the said notice, or otherwise.
C. Any sale, assignment, transfer, or other disposition, for value or
otherwise, voluntary or involuntary, of any general partnership interest in
Owner (except any such general partnership interest which is converted into a
limited
63
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partnership interest upon said sale or transfer) shall be deemed a sale or lease
of the Hotel under Section 19.01 A and shall be subject to the provisions
thereof. Owner, from time to time, upon written request of the Management
Company, shall furnish the Management Company with a list of the names and
addresses of the owners of the partnership interests or other proprietary
interests in Owner (such list shall not include any information with respect to
the shareholders of any of the partners constituting the Owner).
END OF ARTICLE XIX
64
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ARTICLE XX
CONDITIONS
----------
20.01 Management Company
------------------
The obligations (except for those set forth in Article VI hereof) of the
Management Company hereunder shall be conditioned upon the following:
A. Timely completion of the Hotel in accordance with terms of the
Technical Services Agreement or in accordance with the plans, specifications and
time schedules otherwise agreed upon by Owner and the Management Company.
B. Receipt prior to the Opening Date of all licenses, permits, decrees,
acts, orders or other approvals necessary for the operation of the Hotel.
END OF ARTICLE XX
65
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ARTICLE XXI
MISCELLANEOUS
-------------
21.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the execution of
this Agreement nor the finalization of the transactions contemplated hereby
shall violate any provision of law or judgment, writ, injunction, order or
decree of any court or governmental authority having jurisdiction over it;
result in or constitute a breach or default under any indenture, contract, or
other commitment or restriction to which it is a party or by which it is bound;
or require any consent, vote or approval which has not been given or taken, or
at the time of the transaction involved shall not have been given or taken.
Each party covenants that it has and will continue to have throughout the term
of this Agreement and any extensions thereof, the full right to enter into this
Agreement and perform its obligations hereunder.
21.02 Consents
--------
Wherever in this Agreement the consent or approval of Owner or the
Management Company is required, such consent or approval shall not be
unreasonably withheld or delayed, shall be in writing and executed by a duly
authorized officer or agent of the party granting such consent or approval, and
no charge or fee shall be due in connection with any such consent or approval.
21.03 Agency
------
The relationship of Owner and the Management Company shall be that of
principal and agent, and nothing contained in this Agreement shall be construed
to create a partnership or joint
66
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venture between them or their successors in interest. The Management Company's
agency established by this Agreement is coupled with an interest and may not be
terminated by Owner until the expiration of the term of this Agreement except as
provided in Article XVI.
21.04 Failure to Perform
------------------
If the Management Company or Owner shall at any time fail to make any
payments as specified or required hereunder, or shall fail to perform any other
act on its part to be made or performed hereunder without limitation, then the
other party, after [ ] days' written notice to the defaulting party may (but
shall not be obligated to) pay any such delinquent amount or perform any other
act on the defaulting party's part to be made or performed as provided in this
Agreement and may enter upon the Hotel premises for said purpose and take all
such action thereon as may be necessary or desirable therefor. Any sums thus
paid and all costs and expenses incurred in connection with the proper
performance of any such act, together with interest thereon at the then prime
rate of interest established by The Bankers Trust Company, New York City, New
York, plus [ ] points, from the date that such payment is made or such cost
and expense incurred, shall constitute a liquidated amount to be paid by
defaulting party under this Agreement to the other party on demand from the
defaulting party's funds.
21.05 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws
of the State of [ ].
21.06 Recordation
-----------
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At the request of either party, the parties shall execute an appropriate
memorandum of this Agreement in recordable form and cause the same to be
recorded in the jurisdiction where the Hotel is located. Any cost of such
recordation shall be initially borne by Owner, reimbursed to Owner from Gross
Revenues, and treated as a Deduction.
21.07 Headings
--------
Headings of Articles and Sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they refer.
21.08 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, return receipt requested:
To Owner:
[
]
To Management Company:
[
]
or at such other address as from time to time designated by the party receiving
the notice.
21.09 Certificates
------------
68
<PAGE>
Owner and Management Company, upon request of either such party to the
other, without charge, shall deliver a written instrument to the requesting
party or to any other party designated by the requesting party, duly executed
and acknowledged, certifying:
(a) That this Agreement is unmodified and in full force and effect, or if
there is any modification then in effect or any existing modification that will
become effective thereafter, stating such modification and stating that the same
is in full force and effect, as modified;
(b) Whether or not there are any then known defaults by Owner or Management
Company hereunder, or existing setoffs or defenses against the enforcement of
any of the terms, agreements, covenants, conditions and limitations of the
Agreement and any modification thereof upon the part of Management Company or
Owner to be performed or complied with, and it so, specifying the same; and
(c) The dates to which any stated amounts and other charges hereunder, have
been paid.
Such certificates shall not estop Owner or Management Company from
thereafter asserting any existing default of which such party did not have
actual knowledge on the date of the making of such certificate.
21.10 Trade Area Restriction
----------------------
Management Company hereby covenants and agrees that it will not operate,
nor permit any other person, firm or entity to operate, a hotel or motel
facility under any trade names and/or franchises now or hereafter owned or
adopted by [ ],
69
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its successors and assigns: i) within Douglas or Sarpy Counties in Nebraska, or
Pottawattamie County in Iowa for a period of ten (10) years from the Opening
Date; and ii) within the cross-hatched area on Exhibit C, attached hereto and
made a part hereof, for the entire term of this Agreement.
21.11 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties
expressly stated to be executed and delivered pursuant to this Agreement,
constitutes the entire agreement between the parties and supersedes all prior
understandings and writings, and may be changed only by a writing signed by the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
[
]
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TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 AAA........................................... 1
1.2 Accounting Period............................. 1
1.3 Additional Charges............................ 1
1.4 Advisors...................................... 2
1.5 Affiliate..................................... 2
1.6 Agreement..................................... 2
1.7 Annual Budget................................. 2
1.8 Annual Food and Beverage Sales Break Points... 2
1.9 Annual Golf Sales Break Points................ 2
1.10 Annual Other Income Break Point................. 2
1.11 Annual Parking Sales Break Point................ 2
1.12 Annual Retail Sales Break Points................ 2
1.13 Annual Room Revenues Break Points............... 2
1.14 Applicable Laws................................. 2
1.15 Approved Financial Institution................ 3
1.16 Award......................................... 3
1.17 Beverage Sales................................ 3
1.18 Business Day.................................. 4
1.19 Capital Budget................................ 4
1.20 Capital Expenditure........................... 4
1.21 Capital Repair................................ 4
1.22 Cash.......................................... 4
1.23 Cash Equivalents.............................. 4
1.24 Change of Control............................. 4
1.25 Change in Operations.......................... 5
1.26 Claim......................................... 5
1.27 Code.......................................... 5
1.28 Commencement Date............................. 5
1.29 Competitive Set............................... 5
1.30 Condemnation.................................. 5
1.31 Condemnor..................................... 5
1.32 Condominium Association....................... 5
1.33 Condominium Declaration....................... 5
1.34 Condominium Dues.............................. 5
1.35 CPI........................................... 6
1.36 Current Market Value.......................... 6
1
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1.37 Date of Taking................................ 6
1.38 Default....................................... 6
1.39 Distribution.................................. 6
1.40 Dollars or $.................................. 6
1.41 Emergency Repairs............................. 6
1.42 Encumbrance................................... 6
1.43 Entity........................................ 6
1.44 Environment................................... 7
1.45 Environmental Obligation...................... 7
1.46 Environmental Notice.......................... 7
1.47 Event of Default.............................. 7
1.48 Expiration Date............................... 7
1.49 FF&E.......................................... 7
1.50 Fair Market Value............................. 7
1.51 Financial Officer's Certificate............... 7
1.52 Financials.................................... 8
1.53 Fiscal Quarter................................ 8
1.54 Fiscal Year................................... 8
1.55 Fixed Term.................................... 8
1.56 Fixtures...................................... 8
1.57 Food Sales.................................... 8
1.58 Force Majeure Event........................... 9
1.59 Franchise Agreement........................... 9
1.60 GAAP.......................................... 9
1.61 Golf Sales.................................... 9
1.62 Government Agencies........................... 10
1.63 Gross Operating Expenses...................... 10
1.64 Gross Revenues................................ 10
1.65 Ground Lease.................................. 11
1.66 Ground Lease Payments......................... 11
1.67 Hazardous Substances.......................... 11
1.68 Hotel......................................... 12
1.69 Hotel Mortgage................................ 12
1.70 Hotel Mortgagee............................... 12
1.71 Hotel Standard................................ 12
1.72 Immediate Family.............................. 12
1.73 Impositions................................... 12
1.74 Incidental Documents.......................... 13
1.75 Indebtedness.................................. 13
2
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1.76 Initial Reserve Fund Payment.................. 13
1.77 Insurance Requirements........................ 13
1.78 Insured Casualty.............................. 14
1.79 Interest Rate................................. 14
1.80 Inventory..................................... 14
1.81 Key Employee.................................. 14
1.82 Land.......................................... 14
1.83 Landlord...................................... 14
1.84 Landlord Liens................................ 14
1.85 Lease Year.................................... 14
1.86 Leased Improvements........................... 15
1.87 Leased Intangible Property.................... 15
1.88 Leased Personal Property...................... 15
1.89 Leased Property............................... 15
1.90 Legal Requirements............................ 15
1.91 Licenses...................................... 15
1.92 Lien.......................................... 15
1.93 Management Agreement.......................... 16
1.94 Manager....................................... 16
1.95 Material Franchise Change..................... 16
1.96 Measurement Date.............................. 16
1.97 Minimum Inventory............................. 16
1.98 Minimum Operating Standards................... 16
1.99 Minimum Rent.................................. 16
1.100 Minimum Working Capital....................... 16
1.101 Notice........................................ 16
1.102 Officer's Certificate......................... 17
1.103 Operating Budget.............................. 17
1.104 OP Units...................................... 17
1.105 Other Income.................................. 17
1.106 Overdue Rate.................................. 17
1.107 Parent........................................ 17
1.108 Parking Revenues.............................. 17
1.109 Participating Leases.......................... 17
1.110 Participating Rent............................ 17
1.111 Permitted Encumbrances........................ 17
1.112 Permitted Liens............................... 17
1.113 Permitted Transfer............................ 18
1.114 Permitted Use................................. 18
3
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1.115 Prohibited Casualty........................... 18
1.116 Person........................................ 18
1.117 Personal Property Limitation.................. 18
1.118 Prohibited Taking............................. 18
1.119 Purchase...................................... 18
1.120 Purchase Notice............................... 18
1.121 Records....................................... 18
1.122 REIT.......................................... 18
1.123 REIT Shares................................... 18
1.124 Rent.......................................... 18
1.125 Replacement Cost.............................. 18
1.126 Required Minimum Net Worth.................... 18
1.127 Required Purchase............................. 18
1.128 Reserve Fund.................................. 18
1.129 Retail Sales.................................. 18
1.130 Revenue Computation........................... 19
1.131 Revenue Performance Shortfall................. 19
1.132 RevPAR........................................ 19
1.133 RevPAR Yield Index............................ 19
1.134 Room Revenues................................. 19
1.135 SEC........................................... 20
1.136 Sale Notice................................... 20
1.137 Security Deposit.............................. 20
1.138 Solvent....................................... 20
1.139 State......................................... 20
1.140 Subordinated Creditor......................... 20
1.141 Subordination Agreement....................... 20
1.142 Subsidiary.................................... 21
1.143 Successor Landlord............................ 21
1.144 Superior Landlord............................. 21
1.145 Superior Lease................................ 21
1.146 Superior Mortgage............................. 21
1.147 Superior Mortgagee............................ 21
1.148 Tax Law Change................................ 21
1.149 Telephone Revenues............................ 21
1.150 Tenant........................................ 21
1.151 Tenant's Assets............................... 21
1.152 Tenant's Personal Property.................... 21
1.153 Term.......................................... 22
4
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1.154 Third Party......................................... 22
1.155 Third Party Notice.................................. 22
1.156 Transferor.......................................... 22
1.157 Uniform System of Accounts.......................... 22
1.158 Unsuitable for Its Permitted Use.................... 22
1.159 Work................................................ 22
ARTICLE 2
LEASED PROPERTY AND TERM
2.1 Leased Property..................................... 22
2.2 Condition of Leased Property........................ 24
2.3 Fixed Term.......................................... 24
ARTICLE 3
RENT
3.1 Rent................................................ 25
3.2 Late Payment of Rent, Etc........................... 32
3.3 Net Lease........................................... 32
3.4 No Termination, Abatement, Etc...................... 32
ARTICLE 4
USE OF THE LEASED PROPERTY
4.1 Permitted Use....................................... 33
4.2 Compliance with Legal/Insurance
Requirements, Etc................................... 34
4.3 Environmental Matters............................... 34
ARTICLE 5
MAINTENANCE AND REPAIRS
TABLE OF CONTENTS (cont'd)
Page
5.1 Maintenance and Repair.............................. 36
5.2 Tenant's Personal Property.......................... 38
5
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5.3 Surrender........................................... 39
5.4 Management Agreement................................ 39
5.5 Management Fees..................................... 40
5.6 Minimum Inventory................................... 40
ARTICLE 6
IMPROVEMENTS, ETC.
6.1 Improvements to the Leased Property................. 40
6.2 Salvage............................................. 41
6.3 Reserve Fund........................................ 41
ARTICLE 7
LIENS
7.1 Liens............................................... 42
7.2 Landlord's Lien..................................... 43
ARTICLE 8
PERMITTED CONTESTS
8.1 Permitted Contests.................................. 43
ARTICLE 9
INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements...................... 44
9.2 Replacement Cost.................................... 46
9.3 Waiver of Subrogation............................... 46
9.4 Form Satisfactory, Etc.............................. 46
9.5 Blanket Policy...................................... 47
9.6 No Separate Insurance............................... 47
9.7 Indemnification of Landlord......................... 47
9.8 Increase in Limits.................................. 48
6
<PAGE>
ARTICLE 10
CASUALTY
10.1 Insurance Proceeds.................................. 48
10.2 Damage or Destruction............................... 49
10.3 Damage Near End of Term............................. 50
TABLE OF CONTENTS (cont'd)
Page
10.4 Tenant's Property................................... 50
10.5 Restoration of Tenant's Property.................... 51
10.6 Waiver.............................................. 51
10.7 Casualty -- Conflicting Terms....................... 51
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc............................. 51
11.2 Partial Taking...................................... 52
11.3 Tenant's Award...................................... 52
11.4 Condemnation -- Conflicting Terms................... 52
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default................................... 52
12.2 Remedies............................................ 56
12.3 Tenant's Waiver..................................... 58
12.4 Application of Funds................................ 58
12.5 Landlord's Right to Cure Tenant's Default........... 58
ARTICLE 13
HOLDING OVER
13.1 Holding Over........................................ 58
ARTICLE 14
7
<PAGE>
LIMITATION ON LIABILITY
14.1 Limitation of Liability............................. 59
ARTICLE 15
SECURITY
15.1 Security Deposit.................................... 59
15.2 Representations, Warranties and Covenants........... 60
15.3 Possession and Maintenance of Security
Deposit............................................. 60
ARTICLE 16
SUBLETTING AND ASSIGNMENT
TABLE OF CONTENTS (cont'd)
Page
16.1 Subletting and Assignment........................... 61
16.2 Required Sublease Provisions........................ 61
16.3 Sublease Limitation................................. 63
ARTICLE 17
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
17.1 Estoppel Certificates............................... 63
17.2 Financial Statements................................ 63
17.3 Annual Budget....................................... 65
17.4 General Operations.................................. 67
ARTICLE 18
LANDLORD'S RIGHT TO INSPECT
18.1 Right to Inspect.................................... 67
ARTICLE 19
LIMITATIONS
8
<PAGE>
19.1 Personal Property Limitation........................ 67
19.2 Tenant Ownership Limitation......................... 68
19.3 Director, Officer and Employee Limitation........... 68
ARTICLE 20
HOTEL MORTGAGES
20.1 Landlord May Grant Liens............................ 69
20.2 Subordination of Lease.............................. 69
20.3 Notice to Mortgagee and Ground Landlord............. 71
ARTICLE 21
ADDITIONAL COVENANTS OF TENANT
21.1 Prompt Payment of Indebtedness...................... 71
21.2 Intentionally Omitted............................... 71
21.3 Notice of Litigation, Etc........................... 71
21.4 Indebtedness of Tenant.............................. 72
21.5 Financial Condition of Tenant....................... 72
21.6 Limitation on Distributions......................... 72
21.7 Prohibited Transactions............................. 73
21.8 Liens and Encumbrances.............................. 73
21.9 Merger, Sale of Assets, Etc......................... 73
TABLE OF CONTENTS (cont'd)
Page
21.10 Compliance with Franchise Agreement................. 73
21.11 Termination Upon Revenue Performance
Shortfall, Sale, Etc.................... 74
21.12 Change in Operations................................ 75
21.13 Use of the Leased Property.......................... 76
21.14 Continuing Covenants................................ 76
21.15 Net Worth........................................... 77
21.16 Other Activities.................................... 78
21.17 Reservation System.................................. 78
22.1 Limitation on Payment of Rent....................... 78
22.2 No Waiver........................................... 79
22.3 Remedies Cumulative................................. 79
22.4 Severability........................................ 79
22.5 Acceptance of Surrender............................. 79
9
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22.6 No Merger of Title.................................. 79
22.7 Conveyance by Landlord.............................. 80
22.8 Quiet Enjoyment..................................... 80
22.9 Memorandum of Lease................................. 80
22.10 Notices............................................. 80
22.11 Construction........................................ 82
22.12 Counterparts, Headings.............................. 82
22.13 Applicable Law, Etc................................. 82
22.14 Right to Make Agreement............................. 83
22.15 Transition Procedures............................... 83
22.16 Complimentary Rooms................................. 84
22.17 Approval of Key Employees........................... 84
22.18 Incorporation of Prior Agreements................... 84
22.19 Attorney's Fees..................................... 84
22.20 Intentionally Omitted............................... 84
22.21 Governing Law....................................... 84
22.22 Change of Control of Tenant......................... 85
22.23 Non-Competition..................................... 86
ARTICLE 23
ARBITRATION
23.1 Arbitration......................................... 86
23.2 Intentionally Omitted............................... 87
23.3 Arbitration Procedures.............................. 87
10
<PAGE>
TABLE OF CONTENTS (cont'd)
Page
EXHIBITS
A - Miscellaneous Initial Requirements/Terms
B - Hotel Standards
C - Minimum Inventory
D - Minimum Working Capital
E - The Land
F - Security Deposit
11
<PAGE>
EXHIBIT 10.15
MASTER LEASE
============
LEASE AGREEMENT
DATED AS OF [______________]
BY AND BETWEEN
[_____________________]
AS LANDLORD,
AND
[_______________________]
AS TENANT
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into as of this [____] day of [_____] by
and between [_________________________________] as landlord ("Landlord"),
--------
and [_______________________________] as tenant ("Tenant").
------
W I T N E S S E T H :
-------------------
WHEREAS, Landlord owns [fee simple] [leasehold] title to the Leased
Property (this and other capitalized terms used and not otherwise defined herein
having the meanings ascribed to such terms in Article 1); and
---------
WHEREAS, Landlord wishes to lease the Leased Property to Tenant and Tenant
wishes to lease the Leased Property from Landlord, all subject to and upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the mutual receipt and legal
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, (i) the terms defined in this Article
shall have the meanings assigned to them in this Article and include the plural
as well as the singular, (ii) all accounting terms not otherwise defined herein
shall have the meanings assigned to them in accordance with GAAP and the Uniform
System of Accounts, (iii) all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Agreement, (iv) all cites to specific
laws, rules, statutes, regulations, ordinances or codes shall be cites to the
applicable laws, rules, statutes, regulations, ordinances or codes of the United
States of America, and (v) the words "herein," "hereof," "hereunder" and other
words
<PAGE>
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
1.1 "AAA" shall have the meaning given such term in Section 23.1.
--- ------------
1.2 "Accounting Period" shall mean each calendar month.
-----------------
1.3 "Additional Charges" shall have the meaning given such term in Section
------------------ -------
3.1.3.
- -----
1.4 "Advisors" shall mean LaSalle Hotel Advisors.
--------
1.5 "Affiliate" shall mean, with respect to any Person, (a) in the case of
---------
any such Person which is a partnership, any partner in such partnership, (b) in
the case of any such Person which is a limited liability company, any member of
such company, (c) any other Person or company which is a Parent, a Subsidiary,
or a Subsidiary of a Parent with respect to such Person or company or to one or
more of the Persons referred to in the preceding clauses (a) and (b), (d) any
other Person who is an officer, director, trustee or employee of, or partner in,
such Person or any Person referred to in the preceding clauses (a), (b) and (c),
and (e) any other Person who is a member of the Immediate Family of such Person
or of any Person referred to in the preceding clauses (a) through (d).
1.6 "Agreement" shall mean this Lease Agreement, including all exhibits
---------
hereto, as it and they may be amended from time to time as herein provided.
1.7 "Annual Budget" shall have the meaning given such term in Section
------------- -------
17.3.
1.8 "Annual Food and Beverage Sales Break Points" shall have the meaning
-------------------------------------------
given such term in Section 3.1.4.
-------------
1.9 "Annual Golf Sales Break Points" shall have the meaning given such
------------------------------
term in Section 3.1.4.
-------------
1.10 "Annual Other Income Break Point" shall have the meaning given such
-------------------------------
term in Section 3.1.4.
-------------
2
<PAGE>
1.11 "Annual Parking Sales Break Point" shall have the meaning given such
--------------------------------
term in Section 3.1.4.
-------------
1.12 "Annual Retail Sales Break Points" shall have the meaning given such
--------------------------------
term in Section 3.1.4.
-------------
1.13 "Annual Room Revenues Break Points" and "Annual Telephone Revenues
--------------------------------- ------- ------------------
Break Points" shall have the meanings given such terms in Section 3.1.4.
- ------------- -------------
1.14 "Applicable Laws" shall mean all applicable laws, statutes,
---------------
regulations, rules, ordinances, codes, licenses, international treaties, permits
and orders, from time to time in existence, of all courts of competent
jurisdiction and Government Agencies, and all applicable judicial and
administrative and regulatory decrees, judgments and orders, including common
law rulings and determinations, relating to injury to, or the protection of,
real or personal property or human health (except those requirements which, by
definition, are solely the responsibility of employers) or the Environment,
including, without limitation, all valid and lawful requirements of courts and
other Government Agencies pertaining to reporting, licensing, permitting,
investigation, remediation and removal of underground improvements (including,
without limitation, treatment or storage tanks, or water, gas or oil wells), or
emissions, discharges, releases or threatened releases of Hazardous Substances,
chemical substances, pesticides, petroleum or petroleum products, pollutants,
contaminants or hazardous or toxic substances, materials or waste whether solid,
liquid or gaseous in nature, into the Environment, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances, underground improvements
(including, without limitation, treatment or storage tanks, or water, gas or oil
wells), or pollutants, contaminants or hazardous or toxic substances, material
or wastes, whether solid, liquid or gaseous in nature.
1.15 "Approved Financial Institution" shall mean (a) any United States of
------------------------------
America commercial bank which is FDIC insured and has a consolidated net worth,
as of any pertinent date under the terms of this Agreement, of not less than
$250,000,000 (as adjusted by CPI) and is otherwise reasonably satisfactory to
Landlord or (b) any other substantial United
3
<PAGE>
States of America financial institution that is satisfactory to Landlord in its
sole and absolute discretion.
1.16 "Award" shall mean all compensation, sums or other value awarded, paid
-----
or received by virtue of a total or partial Condemnation of the Leased Property
(after deduction of all reasonable legal fees and other reasonable costs and
expenses, including, without limitation, expert witness fees, incurred by
Landlord, in connection with obtaining any such award).
1.17 "Beverage Sales" shall mean Gross Revenues from (a) the sale of wine,
--------------
beer, liquor or other alcoholic beverages, whether sold in a bar or lounge,
delivered to or available in a guest room, sold at meetings or banquets or at
any other location at the Hotel and (b) non-alcoholic beverages sold in a bar or
lounge. Such revenue shall include sales by Tenant and its permitted
subtenants, licensees and concessionaires if such permitted subtenant, licensees
or concessionaires are Affiliates of Tenant. Such revenue shall be determined
in a manner consistent with GAAP and the Uniform System of Accounts and shall
include (a) the fair market value of goods or services which have been provided
in exchange for beverages under bartering or trade arrangements, (b) the fair
market value of beverages provided under frequent traveler programs, gift
certificate programs or any other similar programs, and (c) the fair market
value of any other allowances deducted from beverage revenues (items (a)-(c)
being allocated to the respective revenues categories in accordance with the
Uniform System of Accounts). Such revenue shall not include: (a) any gratuity or
service charge added to a customer's bill or statement in lieu of gratuity which
is paid directly to an employee; or (b) sales taxes or taxes of any other kind
imposed on the sale of alcoholic or other beverages; or (c) the value of any
beverages provided to employees of Landlord, Tenant, any franchisor under the
Franchise Agreement or any guest on a complimentary basis. All credits, rebates,
refunds and credit card chargebacks relating to Beverage Sales shall be deducted
from Beverage Sales.
1.18 "Business Day" shall mean any day other than Saturday, Sunday, or any
------------
other day on which banking institutions in the State of New York, the State of
Delaware, the State of Illinois, or the State are authorized by law or executive
order to close.
4
<PAGE>
1.19 "Capital Budget" shall have the meaning given such term in Section
-------------- -------
17.3.
- ----
1.20 "Capital Expenditure" shall mean any expenditure treated as capital in
-------------------
nature in accordance with GAAP.
1.21 "Capital Repair" shall mean any renovation, replacement, repair or
--------------
improvement to the Leased Property (or portion thereof) the cost of which
constitutes a Capital Expenditure and any renovation, replacement, repair or
improvement set forth and approved in the Capital Budget.
1.22 "Cash" shall mean cash or other immediately available funds.
----
1.23 "Cash Equivalents" shall mean (a) any debt instrument with a term of
----------------
up to twelve (12) months that is issued by or backed by the full faith and
credit of the United States of America, (b) any certificate of deposit with a
term of up to twelve (12) months that is issued by an issuer that, on the date
of issuance and on each date of any renewal or reissuance thereof, is an
Approved Financial Institution, and which instrument and any applicable
assignment thereof is in form and substance reasonably satisfactory to the
Landlord and (c) any irrevocable, "clean" letter of credit issued by an issuer
that, on the date of issuance and on each date of any renewal or reissuance
thereof, is an Approved Financial Institution, and which instrument is in form
and substance reasonably satisfactory to the Landlord.
1.24 "Change of Control" shall mean the sale, conveyance, assignment,
-----------------
encumbering, pledging, hypothecation, granting a security interest in, granting
of options with respect to, or other disposition of (directly or indirectly,
voluntarily or involuntarily, by operation of law or otherwise, and whether or
not for consideration) of any class of partnership interests, stock or other
equity interests in a Person (other than among existing holders of interests in
such Person on the Commencement Date and/or family members of such holders
and/or trusts for the benefit of any of the foregoing) that, upon a transfer of
any portion thereof, will create in the transferee thereof, directly or
indirectly, a majority of any class of partnership interest, stock or other
equity interests of such Person.
5
<PAGE>
1.25 "Change in Operations" shall have the meaning given such term in
--------------------
Section 21.12.
- -------------
1.26 "Claim" shall have the meaning given such term in Section 8.1.
----- -----------
1.27 "Code" shall mean the Internal Revenue Code of 1986 and, to the extent
----
applicable, the Treasury Regulations promulgated thereunder, each as from time
to time amended.
1.28 "Commencement Date" shall mean the date of this Agreement.
-----------------
1.29 "Competitive Set" shall mean a determination made by Landlord and
---------------
Tenant annually, at the time of preparation and approval of the Annual Budget,
of an appropriate reference group of hotels which are considered competitive
with the Leased Property and which Tenant and Landlord shall agree shall
constitute the Competitive Set for such Fiscal Year. If Landlord or Tenant fail
to agree upon the Competitive Set, the matter shall be referred to arbitration
as provided for in Article 23.
----------
1.30 "Condemnation" shall mean (a) the exercise with respect to the Leased
------------
Property, whether by legal proceedings or otherwise, by a Condemnor of any power
of condemnation, (b) a voluntary sale or transfer of the Leased Property by
Landlord to a Condemnor, either under threat of condemnation or while legal
proceedings for condemnation are pending, or (c) a taking or voluntary
conveyance of all or part of the Leased Property, or any interest therein, or
right accruing thereto or use thereof, as the result or in settlement of any
Condemnation or other eminent domain proceeding affecting the Leased Property,
whether or not the same shall have actually been commenced.
1.31 "Condemnor" shall mean any public or quasi-public authority, or
---------
private corporation or individual, having the power of Condemnation.
1.32 "Condominium Association"shall mean [________].
-----------------------
1.33 "Condominium Declaration" shall mean [________].
-----------------------
6
<PAGE>
1.34 "Condominium Dues" shall mean any and all fees, expenses or dues
----------------
payable under the Condominium Declaration.
1.35 "CPI" shall mean the "Consumer Price Index" published by the
---
Bureau of Labor Statistics of the United States of America Department of Labor,
U.S. City Average, All Items for Urban Wage Earners and Clerical Workers (1982-
1984=100).
1.36 "Current Market Value" shall mean, as of any pertinent date: (a) as to
--------------------
Cash and Cash Equivalents, the face amount thereof; (b) as to co-investments in
hotels by Tenant and Landlord, the value of such co-investment, based on the
value placed on the corresponding investment by Landlord or the REIT in the most
recent version of its own financial statements; and (c) as to Marketable
Securities, the closing price of such securities, as reported in The Wall Street
Journal for the trade date next preceding such pertinent date.
1.37 "Date of Taking" shall mean the date the Condemnor has the right to
--------------
possession of the Leased Property, or any portion thereof, in connection with a
Condemnation.
1.38 "Default" shall mean any event or condition which with the giving of
-------
notice and/or lapse of time may ripen into an Event of Default.
1.39 "Distribution" shall mean (a) any declaration or payment of any
------------
dividend (except dividends payable in common stock of Tenant) on or in respect
of any shares of any class of capital stock of Tenant, (b) any purchase,
redemption, retirement or other acquisition of any shares of any class of
capital stock of a corporation, (c) any other distribution on or in respect of
any shares of any class of capital stock of a corporation, or (d) any return of
capital to shareholders.
1.40 "Dollars" or "$" shall mean lawful money of the United States of
------- -
America which shall be legal tender for the payment of public and private debts
in the United States of America.
1.41 "Emergency Repairs" shall have the meaning given such term in Section
----------------- -------
5.1.2(b).
- --------
7
<PAGE>
1.42 "Encumbrance" shall have the meaning given such term in Section 20.1.
----------- ------------
1.43 "Entity" shall mean any corporation, general or limited partnership,
------
limited liability company or partnership, stock company or association, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, cooperative, any government or agency or political subdivision thereof or
any other entity.
1.44 "Environment" shall mean soil, surface waters, ground waters,
-----------
land, stream, sediments, surface or subsurface strata and ambient air.
1.45 "Environmental Obligation" shall have the meaning given such term in
------------------------
Section 4.3.1.
- -------------
1.46 "Environmental Notice" shall have the meaning given such term in
--------------------
Section 4.3.1.
- -------------
1.47 "Event of Default" shall have the meaning given such term in Section
---------------- -------
12.1.
- ----
1.48 "Expiration Date" shall mean the date set forth on Exhibit A attached
--------------- ---------
hereto.
1.49 "FF&E" shall mean all furniture, furnishings and equipment (except
----
equipment and fixtures attached to and forming a part of the Leased
Improvements) required for the operation of the Leased Improvements as a hotel,
including, without limitation, (a) office furnishings and equipment, (b)
specialized hotel equipment necessary for the operation of any portion of the
Leased Improvements as a hotel, including equipment for kitchens, laundries, dry
cleaning facilities, bars, restaurants, public rooms, commercial and parking
spaces, and recreational facilities, (c) all other furnishings and equipment as
necessary or desirable in the operation of the Leased Property in accordance
with the terms and conditions set forth in this Agreement, and (d) all
replacements, substitutions and additions of and to all of the foregoing.
1.50 "Fair Market Value" shall mean, as to a specific valuable asset, the
-----------------
purchase price which a seller would be able
8
<PAGE>
to obtain for such asset in an arms-length transaction with a buyer which is not
an Affiliate of the seller, and taking into consideration all factors which
might reasonably affect the sales price of the asset in question, including,
without limitation, if and as appropriate, the existence of a control block or
minority interest, the anticipated impact on current market prices of immediate
sale, the lack of a market for such asset, and the impact on present value of
factors such as length of time before any such sales may become possible and the
cost and complexity of any such sales.
1.51 "Financial Officer's Certificate" shall mean, as to any Person, a
-------------------------------
certificate of the chief financial officer or chief accounting officer (or such
officer's authorized designee) of such Person, duly authorized, accompanying the
financial statements required to be delivered by such Person pursuant to Section
-------
17.2, in which such officer shall certify on behalf of such Person (a) that such
- ----
statements have been properly prepared in accordance with GAAP and the Uniform
System of Accounts and are true, correct and complete in all material respects
and fairly present the financial condition of such Person at and as of the dates
thereof and the results of its and their operations for the periods covered
thereby, and (b) certify that such officer has reviewed this Agreement and has
no knowledge of any Default or Event of Default hereunder.
1.52 "Financials" shall mean, for any Fiscal Year or other accounting
----------
period of Tenant, statements of operations, partners' capital and cash flow (or,
in the case of a corporation, statements of operations, retained earnings and
cash flow) for such period and for the period from the beginning of the
respective Fiscal Year to the end of such period and the related balance sheet
as of the end of such period, together with the notes to any such yearly
statement, all in such detail as may be required by the SEC with respect to
filings made by the REIT or Landlord or as may be reasonably required by
Landlord, and setting forth in comparative form the corresponding figures for
the corresponding period in the preceding Fiscal Year, and prepared in
accordance with GAAP and the Uniform System of Accounts and audited annually
(and quarterly if required by the SEC or if reasonably required by Landlord) by
a nationally recognized firm of independent certified public accountants
proposed by Tenant and approved by Landlord, which approval shall
9
<PAGE>
not be unreasonably withheld or delayed. Financials shall be prepared on the
basis of a December 31 fiscal year of Tenant.
1.53 "Fiscal Quarter" shall mean each fiscal quarter of the Fiscal Year.
--------------
1.54 "Fiscal Year" shall mean each calendar year.
-----------
1.55 "Fixed Term" shall have the meaning given such term in Section 2.3.
---------- -----------
1.56 "Fixtures" shall have the meaning given such term in Section 2.l(d).
-------- --------------
1.57 "Food Sales" shall mean (a) Gross Revenues from the sale of food and
----------
non-alcoholic beverages that are prepared at the Hotel and sold or delivered on
or off the Hotel by Tenant whether for cash or for credit, including in respect
of guest rooms, banquet rooms, meeting rooms and other similar rooms, and (b)
Gross Revenues from the rental of banquet, meeting and other similar rooms.
Such revenue shall include sales by Tenant and its permitted subtenants,
licensees and concessionaires, but as to subleases, licenses or similar
arrangements for food and non-alcoholic beverage sales which were entered into
by Landlord or any prior owner of the Leased Property with parties who are not
Affiliates of Tenant and which are existing as of the date of this Agreement,
such revenue shall only include rents received under such existing subleases,
licenses or similar arrangements. Such revenue shall be determined in a manner
consistent with GAAP and the Uniform System of Accounts and shall include (a)
the fair market value of goods or services which have been provided in exchange
for food under bartering or trade arrangements, (b) the fair market value of
food provided under frequent traveler programs, gift certificate programs or any
other similar programs and (c) the fair market value of any other allowances
deducted from food revenues (items (a)-(c) being allocated to the respective
revenues categories in accordance with the Uniform System of Accounts). Such
revenue shall not include: (a) vending machine sales; (b) any gratuities or
service charges added to a customer's bill or statement in lieu of gratuity
which is paid directly to an employee; (c) non-alcoholic beverages sold from a
bar or lounge; or (d) sales taxes or taxes of any other kind imposed on the sale
of food or non-alcoholic beverages; or
10
<PAGE>
(e) the value of food or non-alcoholic beverages provided to employees of
Landlord, Tenant, the franchisor under the Franchise Agreement or any other
guests on a complimentary basis. All credits, rebates, refunds and credit card
chargebacks relating to Food Sales shall be deducted from Food Sales.
1.58 "Force Majeure Event" shall mean an interruption of the operation of
-------------------
the Hotel resulting from, or caused by, general strikes, wars (declared or
undeclared), natural disasters such as fires, storms, floods or earthquakes, or
other material extraordinary economic events not reasonably foreseeable by the
parties hereto, and which such interruption causes a delay in the performance of
any material obligation hereunder.
1.59 "Franchise Agreement" shall mean any franchise agreement or license
-------------------
agreement with a franchisor under which the Hotel is operated.
1.60 "GAAP" shall mean generally accepted accounting principles of the
----
United States of America, consistently applied.
1.61 "Golf Sales" shall mean the Gross Revenues derived from the operation
----------
of a golf course at the Leased Property, including, but not limited to, sales,
lessons, greens fees, cart rentals, other rentals and other income attributable
thereto. Such revenue shall be determined in a manner consistent with GAAP and
the Uniform System of Accounts and shall include (a) the fair market value of
goods or services which have been provided in exchange for goods, services or
facility usage under bartering or trade arrangements, (b) the fair market value
of goods, services or facility usage which has been provided under frequent
traveler programs, gift certificate programs or any other similar programs and
(c) the fair market value of any other allowances deducted from golf revenues
(items (a)-(c) being allocated to the respective revenues categories in
accordance with the Uniform System of Accounts). Golf Sales shall not include:
(a) all sales taxes, and (b) the value of goods or services provided to
employees of Landlord, Tenant, the franchiser under the Franchise Agreement or
any other guests on a complimentary basis.
1.62 "Government Agencies" shall mean any court, agency, authority, board
-------------------
(including, without limitation, environmental protection, planning and zoning),
bureau,
11
<PAGE>
commission, department, office or instrumentality of any nature whatsoever of
any governmental or quasi-governmental unit of the country in which the Leased
Property is located or the State or any county or any political subdivision of
any of the foregoing, whether now or hereafter in existence, having jurisdiction
over Tenant or the Leased Property or any portion thereof or the Hotel operated
thereon.
1.63 "Gross Operating Expenses" shall mean all salaries and employee
------------------------
expense and payroll taxes (including salaries, wages, bonuses and other
compensation of all employees of the Hotel, and benefits including life, medical
and disability insurance and retirement benefits), operational supplies,
utilities, insurance to be provided by Tenant under the terms of this Lease,
governmental fees and assessments, food, beverages, laundry service expense, the
costs of Inventory, license fees, advertising, marketing, reservation systems
and any and all other operating expenses as are reasonably necessary for the
proper and efficient operation of the Hotel incurred by Tenant in accordance
with the provisions hereof (excluding, however, (i) federal, state and municipal
excise, sales and use taxes collected directly from patrons and guests or as a
part of the sales price of any goods, services or displays, such as gross
receipts, admissions, cabaret or similar or equivalent taxes paid over to
federal, state or municipal governments, (ii) the cost of insurance to be
provided by Landlord under Article 9, (iii) expenditures by Landlord, and (iv)
---------
payments on any Hotel Mortgage or other mortgage or security instrument on the
Hotel); all determined in accordance with GAAP. No part of Tenant's central
office overhead or general or administrative expenses (as opposed to that of the
Hotel) shall be deemed to be a part of Gross Operating Expenses, as herein
provided.
1.64 "Gross Revenues" shall mean all revenues, receipts, and income of any
--------------
kind derived directly or indirectly by Tenant from or in connection with the
Hotel (including rentals or other payments from their tenants, lessees,
licensees or concessionaires but not including their gross receipts) whether on
a cash basis or credit, paid or collected, determined in accordance with GAAP
and the Uniform System of Accounts, excluding, however: (a) funds furnished by
Landlord, (b) federal, state and municipal excise, sales, and use taxes
collected directly from patrons and guests or as a part of the
12
<PAGE>
sales price of any goods, services or displays, such as gross receipts,
admissions, cabaret or similar or equivalent taxes and paid over to federal,
state or municipal governments, (c) gratuities, (d) proceeds of insurance and
Awards, (e) proceeds from sales of furnishings, fixtures and equipment which are
permitted pursuant to the terms of this Agreement, (f) all loan proceeds from
financing or refinancings of the Hotel or interests therein or components
thereof, (g) interest earned on funds deposited into the Reserve Fund and (h)
judgments and awards, except any portion thereof arising from normal business
operations of the Hotel.
1.65 "Ground Lease"shall mean [ ].
------------
1.66 "Ground Lease Payments" shall mean any and all fees, costs and
---------------------
expenses, including without limitation, ground rent payable under the Ground
Lease.
1.67 "Hazardous Substances" shall mean any substance:
--------------------
(a) the presence of which requires or may hereafter require
notification, investigation or remediation under any federal, state or
local statute, regulation, rule, ordinance, order, action or policy; or
(b) which is or becomes defined as a "hazardous waste", "hazardous
material" or "hazardous substance" or "pollutant" or "contaminant" under
any present or future federal, state or local statute, regulation, rule,
ordinance or international treaty or amendment thereto including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. et seq.) and the Resource Conservation and
-- ----
Recovery Act (42 U.S.C. section 6901 et seq.); or
-- ----
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
becomes regulated by any governmental authority, agency, department,
commission, board, agency or instrumentality of the country in which the
Leased Property is located, any state of the country in which the Leased
Property is located, or any political subdivision thereof; or
13
<PAGE>
(d) the presence of which on the Leased Property causes or materially
threatens to cause an unlawful nuisance upon the Leased Property or to
adjacent properties or poses or materially threatens to pose a hazard to
the Leased Property or to the health or safety of persons on or about the
Leased Property; or
(e) without limitation, which contains gasoline, diesel fuel or other
petroleum hydrocarbons or volatile organic compounds; or
(f) without limitation, which contains polychlorinated biphenyls
(PCBs) or asbestos or urea formaldehyde foam insulation; or
(g) without limitation, which contains or emits radioactive particles,
waves or material; or
(h) without limitation, constitutes materials which are now or may
hereafter be subject to regulation pursuant to the Material Waste Tracking
Act of 1988, or any Applicable Laws promulgated by any Government Agencies.
1.68 "Hotel" shall mean the hotel being operated on the Leased Property.
-----
1.69 "Hotel Mortgage" shall mean any Encumbrance placed upon the Leased
--------------
Property in accordance with Article 20.
----------
1.70 "Hotel Mortgagee" shall mean the holder of any Hotel Mortgage.
---------------
1.71 "Hotel Standard" shall mean both the operational standards (for
--------------
example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition and utility of the
Fixtures and Leased Personal Property, etc.) set forth in the manual described
in Exhibit B.
---------
1.72 "Immediate Family" shall mean, with respect to any individual, such
----------------
individual's spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren,
14
<PAGE>
grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and
nieces.
1.73 "Impositions" shall mean collectively, all taxes (including, without
-----------
limitation, all taxes imposed under the laws of the State, as such laws may be
amended from time to time, and all ad valorem, sales and use, value added,
single business, gross receipts, transaction privilege, rent or similar taxes as
the same relate to or are imposed upon Landlord, Tenant or the business
conducted upon the Leased Property), sewer or other rents and charges, excises,
tax levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property or the business
conducted thereon by Tenant (including all interest and penalties thereon due to
any failure in payment by Tenant), which at any time prior to, during or in
respect of the Term hereof may be assessed or imposed on or in respect of or be
a lien upon (a) Landlord's interest in the Leased Property, (b) the Leased
Property or any part thereof or any rent therefrom or any estate, right, title
or interest therein, or (c) any occupancy, operation, use or possession of, or
sales from, or activity conducted on, or in connection with the Leased Property
or the leasing or use of the Leased Property or any part thereof by Tenant;
provided, however, that nothing contained herein shall be construed to require
- -------- -------
Tenant to pay (i) any real estate taxes with respect to the Leased Property,
(ii) any Ground Lease Payments, (iii) any tax based on income imposed on
Landlord, (iv) any revenue tax of Landlord, (v) any transfer fee or other tax
imposed with respect to the sale, exchange or other disposition by Landlord of
the Leased Property or the proceeds thereof (other than in connection with the
sale, exchange or other disposition to, or in connection with a transaction
involving, Tenant), (vi) any single business, gross receipts tax (other than a
tax on any rent received by Landlord from Tenant unless such gross receipts tax
on such rent is in lieu of any other tax, assessment, levy or charge otherwise
excluded from this definition of Impositions), transaction privilege, rent or
similar taxes as the same relate to or are imposed upon Landlord, except to the
extent that any tax, assessment, tax levy or charge which is in effect at any
time during the Term hereof is totally or partially repealed, and a
15
<PAGE>
tax, assessment, tax levy or charge set forth in clause (iii) or (iv) preceding
is levied, assessed or imposed expressly in lieu thereof, (vii) any interest or
penalties imposed on Landlord as a result of the failure of Landlord to file any
return or report timely and in the form prescribed by law or to pay any tax or
imposition, except to the extent such failure is a result of a breach by Tenant
of its obligations pursuant to Section 3.1.3, (viii) any Impositions that are
-------------
enacted or adopted by their express terms as a substitute for any tax that would
not have been payable by Tenant pursuant to the terms of this Agreement or (ix)
any Impositions imposed as a result of a breach of covenant or representation by
Landlord in any agreement governing Landlord's conduct or operation or as a
result of the gross negligence or willful misconduct of Landlord.
1.74 "Incidental Documents" shall mean all of the documents or agreements
--------------------
entered into in connection with this Agreement.
1.75 "Indebtedness" shall mean all obligations, contingent or otherwise,
------------
which in accordance with GAAP should be reflected on the obligor's balance sheet
as liabilities.
1.76 "Initial Reserve Fund Payment" shall mean the sum set forth on Exhibit
---------------------------- -------
A attached hereto.
- -
1.77 "Insurance Requirements" shall mean all terms of any insurance policy
----------------------
required by this Agreement, any Hotel Mortgage, any Condominium Declaration, or
under any Ground Lease and all requirements of the issuer of any such policy and
all orders, rules and regulations and any other requirements of the National
Board of Fire Underwriters (or any other body exercising similar functions)
binding upon Landlord, Tenant or the Leased Property.
1.78 "Insured Casualty" shall have the meaning given such term in Section
---------------- -------
10.2.1.
- -------
1.79 "Interest Rate" shall mean on any date, a per annum rate of interest
-------------
equal to the lesser of (a) the rate of interest announced by Citibank, N.A. from
time to time in New York City as its "prime" or "base" rate, as such "prime" or
"base" rate may change from time to time plus three percent (3%)
16
<PAGE>
per annum and (b) the maximum rate then permitted under applicable law.
1.80 "Inventory" shall mean all food, beverages and other consumable items
---------
used in the operation of a hotel, such as fuel, soap, cleaning materials,
matches, stationery, brochures, folios and all other similar items, together
with unused reserve stock (as opposed to in-use operating supplies) of linens,
towels, paper goods, china, glassware, silverware and miscellaneous guest
supplies including but not limited to the items set forth in Exhibit C attached
---------
hereto, together with all substitutions and replacements thereof.
1.81 "Key Employee" shall have the meaning given such term in Section
------------ -------
22.17.
1.82 "Land" shall have the meaning given such term in Section 2.1(a).
---- --------------
1.83 "Landlord" shall have the meaning given such term in the preambles to
--------
this Agreement.
1.84 "Landlord Liens" shall mean liens on or against the Leased Property or
--------------
any payment of Rent (a) which result from any act of, or any claim against,
Landlord or any owner of a direct or indirect interest in the Leased Property,
or which result from any violation by Landlord of any terms of this Agreement,
or (b) which result from liens in favor of any taxing authority by reason of any
tax owed by Landlord or any fee owner of a direct or indirect interest in the
Leased Property; provided, however, that "Landlord Lien" shall not include any
-------- ------- -------------
lien resulting from any tax for which Tenant is obligated to pay or indemnify
Landlord against until such time as Tenant shall have already paid to or on
behalf of Landlord the tax or the required indemnity with respect to the same.
1.85 "Lease Year" shall mean any Fiscal Year or portion hereof, commencing
----------
with the [______] Fiscal Year, during the Term.
1.86 "Leased Improvements" shall have the meaning given such term in
-------------------
Section 2.1(b).
- --------------
17
<PAGE>
1.87 "Leased Intangible Property" shall mean all hotel licensing agreements
--------------------------
and other service contracts, equipment leases, booking agreements and other
arrangements or agreements affecting the ownership, repair, maintenance,
management, leasing or operation of the Leased Property to which Landlord is a
party; all books, records and files relating to the leasing, maintenance,
management or operation of the Leased Property belonging to Landlord; all
transferable or assignable permits, certificates of occupancy, operating
permits, sign permits, development rights and approvals, certificates, licenses,
warranties and guarantees, rights to deposits, trade names, service marks,
telephone exchange numbers identified with the Leased Property, and all other
transferable intangible property, miscellaneous rights, benefits and privileges
of any kind or character belonging to Landlord with respect to the Leased
Property.
1.88 "Leased Personal Property" shall have the meaning given such term in
------------------------
Section 2.1(e).
- --------------
1.89 "Leased Property" shall have the meaning given such term in Section
--------------- -------
2.1.
- ---
1.90 "Legal Requirements" shall mean all federal, state, county, municipal
------------------
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations, certificates and regulations necessary to
operate the Leased Property for its Permitted Use, and (b) all covenants,
agreements, restrictions and encumbrances contained in any instruments at any
time in force affecting the Leased Property, including those which may (i)
require material repairs, modifications or alterations in or to the Leased
Property or (ii) in any way materially and adversely affect the use and
enjoyment thereof, but excluding any requirements arising as a result of
Landlord's or Landlord's Affiliates', as applicable, status as a real estate
investment trust.
1.91 "Licenses" shall have the meaning given such term in Section 22.15.
-------- -------------
18
<PAGE>
1.92 "Lien" shall mean any mortgage, security interest, pledge, collateral
----
assignment, or other encumbrance, lien or charge of any kind, or any transfer of
property or assets for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to payment of
its general creditors.
1.93 "Management Agreement" shall mean the Management Agreement between
--------------------
Tenant and the Manager with respect to the Leased Premises, together with all
amendments, modifications and supplements thereto.
1.94 "Manager" shall have the meaning set forth on Exhibit A.
------- ---------
1.95 "Material Franchise Change" shall mean that the franchisor under the
-------------------------
Franchise Agreement, if any, or the name of the franchisor, is purchased,
rebranded, repositioned, terminated, or otherwise subjected to a change in
ownership or control.
1.96 "Measurement Date" shall have the meaning given such term in Section
---------------- -------
3.1.4.
- -----
1.97 "Minimum Inventory" shall have the meaning set forth on Exhibit C.
----------------- ---------
1.98 "Minimum Operating Standards" shall mean the standards of operation of
---------------------------
the Hotel by which Tenant shall operate the Hotel in conformance with a
commercially practicable manner as a first class hotel and in such a fashion
that Landlord's valuable interest in the Hotel shall not decrease through such
operations and such that the Hotel shall at no time be operated pursuant to a
lower standard (i.e., quality and reputation) than exists at the Commencement
----
Date.
1.99 "Minimum Rent" shall mean, with respect to each Accounting Period, the
------------
sum set forth on Exhibit A attached hereto as increased (but in no event
---------
decreased) by CPI pursuant to Section 3.1.4; provided, however, that Minimum
-------------
Rent shall be adjusted if, as a result of a partial Condemnation or a casualty
which, in each instance and in the reasonable judgment of Landlord, after
consultation with Tenant, makes it impossible to
19
<PAGE>
restore a portion of the Leased Improvements, by a fraction (i) the numerator of
which is the number of rooms which cannot be restored, and (ii) the denominator
of which is the total number of hotel rooms located in the Hotel prior to such
casualty or partial Condemnation.
1.100 "Minimum Working Capital" shall mean the sum set forth on Exhibit
----------------------- -------
D attached hereto.
- -
1.101 "Notice" shall mean a notice given in accordance with Section
------ -------
22.10.
- -----
1.102 "Officer's Certificate" shall mean a certificate signed by an
---------------------
officer of the certifying Entity duly authorized by the board of directors of
the certifying Entity.
1.103 "Operating Budget" shall have the meaning given such term in
----------------
Section 17.3.
- ------------
1.104 "OP Units" shall mean limited partnership interests in Landlord.
--------
1.105 "Other Income" shall mean all revenue, receipts and income,
------------
including, but not limited to, interest income of any kind derived directly or
indirectly from or in connection with the Hotel and included in Gross Revenues
other than Room Revenues, Food Sales, Beverage Sales, Telephone Revenues, Golf
Sales, Retail Sales, and Parking Revenues.
1.106 "Overdue Rate" shall mean, on any date, a per annum rate of
------------
interest equal to the lesser of the Interest Rate plus three percent (3%) per
annum and the maximum rate then permitted under applicable law.
1.107 "Parent" shall mean, with respect to Tenant, any Person which
------
owns directly, or indirectly through one or more Subsidiaries or Affiliates,
five percent (5%) or more of the voting or beneficial interest in, or otherwise
has the right or power (whether by contract, through ownership of securities or
otherwise) to control, Tenant.
1.108 "Parking Revenues" shall mean the Gross Revenues derived from the
----------------
operation of the parking garage, parking lot, or
20
<PAGE>
other parking area, as the case may be, making up a portion of the Improvements.
1.109 "Participating Leases" shall mean any and all other leases
--------------------
executed at any time prior to or during the Term between Tenant and Landlord
with regard to the operation and/or management of hotel properties owned by
Landlord.
1.110 "Participating Rent" shall have the meaning given such term in
------------------
Section 3.1.2(a).
- ----------------
1.111 "Permitted Encumbrances" shall mean all rights, restrictions, and
----------------------
easements of record set forth on the applicable owner's or leasehold title
insurance policy issued to Landlord on the date hereof, plus any other such
encumbrances as may have been consented to in writing by Landlord from time to
time.
1.112 "Permitted Liens" shall mean any Liens granted in accordance with
---------------
Section 21.8(a).
- ---------------
1.113 "Permitted Transfer" shall have the meaning given such term in
------------------
Section 22.22.
- -------------
1.114 "Permitted Use" shall mean any use of the Leased Property
-------------
permitted pursuant to Section 4.1.1.
-------------
1.115 "Prohibited Casualty" shall have the meaning given such term in
-------------------
Section 10.2.1.
- --------------
1.116 "Person" shall mean any individual or Entity, and the heirs,
------
executors, administrators, legal representatives, successors and assigns of such
Person where the context so admits.
1.117 "Personal Property Limitation" shall have the meaning given such
----------------------------
term in Section 19.1.
------------
1.118 "Prohibited Taking" shall have the meaning given such term in
-----------------
Section 11.1.
- ------------
1.119 "Purchase" shall have the meaning given such term in Section
-------- -------
22.22.
- -----
21
<PAGE>
1.120 "Purchase Notice" shall have the meaning given such term in
---------------
Section 22.22.
- -------------
1.121 "Records" shall have the meaning given such term in Section 7.2.
------- -----------
1.122 "REIT" shall mean LaSalle Hotel Properties.
----
1.123 "REIT Shares" shall mean shares of common stock issued by the
-----------
REIT.
1.124 "Rent" shall mean, collectively, the Minimum Rent, Participating
----
Rent and Additional Charges.
1.125 "Replacement Cost" shall have the meaning given such term in
----------------
Section 9.2.
- -----------
1.126 "Required Minimum Net Worth" shall have the meaning given such
--------------------------
term in Section 21.15.
-------------
1.127 "Required Purchase" shall have the meaning given such term is
-----------------
Section 22.22.
- -------------
1.128 "Reserve Fund" shall have the meaning set forth in Section 6.3.
------------ -----------
1.129 "Retail Sales" shall mean the Gross Revenues derived from the
------------
operation of any retail space within the Leased Property, including, but not
limited to sales, leases or any other type of income participation. Such revenue
shall be determined in a manner consistent with GAAP and the Uniform System of
Accounts and shall include (a) the fair market value of goods or services which
have been provided in exchange for goods under bartering or trade arrangements,
(b) the fair market value of goods which has been provided under frequent
traveler programs, gift certificate programs or any other similar programs and
(c) the fair market value of any other allowances deducted from retail revenues
(items (a)-(c) being allocated to the respective revenues categories in
accordance with the Uniform System of Accounts). Retail Sales shall not include:
(a) all sales taxes, and (b) the value of goods or services provided to
employees of Landlord, Tenant, the franchisor under the Franchise Agreement or
any other guests on a complimentary basis.
22
<PAGE>
1.130 "Revenue Computation" shall have the meaning given such term in
-------------------
Exhibit A.
- ---------
1.131 "Revenue Performance Shortfall" shall have the meaning given such
-----------------------------
term in Section 21.11.
-------------
1.132 "RevPAR" shall mean, with respect to a particular Hotel, the room
------
revenue per available room.
1.133 "RevPAR Yield Index" shall mean the percentage amount obtained by
------------------
dividing the RevPAR of the Leased Property by the RevPAR of the Leased
Property's Competitive Set.
1.134 "Room Revenues" shall mean Gross Revenues determined in a manner
-------------
consistent with GAAP and the Uniform System of Accounts, from the rental of
guest rooms whether to individuals, groups or transients, at the Hotel,
including, but not limited to (a) the fair market value of goods or services
which have been provided in exchange for rooms under bartering or trade
arrangements, (b) the fair market value of rooms provided under frequent
traveler programs, gift certificate programs or any other similar programs, (c)
the fair market value of any other allowances or commissions deducted from room
rates, including, but not limited to, discounts and travel agent commissions
(items (a)-(c) being allocated to the respective revenues categories in
accordance with the Uniform System of Accounts), and (d) other Gross Revenues
received from cancellation of room reservations, retained deposits, and other
income derived from reservation changes. Room Revenues shall not include: (a)
all sales taxes or any other taxes imposed on the rental of such guest rooms,
and (b) any fees collected for amenities including, but not limited to,
telephone, laundry, movies or concessions and (c) the value of rooms provided to
employees of Landlord, Tenant, the franchisor under the Franchise Agreement or
guests on a complimentary basis ("Complimentary Rooms"); provided, however, to
the extent the Complimentary Rooms exceed two (2%) percent of the aggregate room
rentals for a Fiscal Year, the fair market value of such excess shall not be
excluded from Room Revenues, and such amounts shall be added to Gross Revenues
for the last Fiscal Quarter of the preceding Fiscal Year. All credits, rebates,
refunds and credit card chargebacks, except to the extent that such Room
Revenues were
23
<PAGE>
originally collected prior to the Commencement Date, shall be deducted from Room
Revenues.
1.135 "SEC" shall mean the United States of America Securities and
---
Exchange Commission or any successor agency.
1.136 "Sale Notice" shall have the meaning given such term in Section
----------- -------
22.22.
- -----
1.137 "Security Deposit" shall have the meaning given such term in
----------------
Section 15.1.
- ------------
1.138 "Solvent" shall mean, as to any Person, that (a) the sum of the
-------
assets of such Person, at a fair valuation, exceeds its liabilities, including
contingent liabilities, (b) such Person has sufficient capital with which to
conduct its business as presently conducted and as proposed to be conducted and
(c) such Person has not incurred debts, and does not intend to incur debts,
beyond its ability to pay such debts as they mature. For purposes of this
definition, "debt" means any liability on a claim, and "claim" means (a) a right
---- -----
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured, or (b) a right to an equitable remedy
for breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured. With respect
to any such contingent liabilities, such liabilities shall be computed in
accordance with GAAP and the Uniform System of Accounts at the amount which, in
light of all the facts and circumstances existing at the time, represents the
amount which can reasonably be expected to become an actual or matured
liability.
1.139 "State" shall mean the state or district in which the Leased
-----
Property is located.
1.140 "Subordinated Creditor" shall mean any creditor of Tenant which
---------------------
is a party to a Subordination Agreement in favor of Landlord.
24
<PAGE>
1.141 "Subordination Agreement" shall mean any agreement executed by a
-----------------------
Subordinated Creditor pursuant to which the payment and performance of Tenant's
obligations to such Subordinated Creditor are subordinated to the payment and
performance of Tenant's obligations to Landlord under this Agreement.
1.142 "Subsidiary" shall mean, with respect to any Person, any Entity (a)
----------
in which such Person owns directly, or indirectly through one or more
Subsidiaries, fifty-one percent (51%) or more of the voting or beneficial
interest or (b) which such Person otherwise has the right or power to control
(whether by contract, through ownership of securities or otherwise).
1.143 "Successor Landlord" shall have the meaning given such term in
------------------
Section 20.2.
- ------------
1.144 "Superior Landlord" shall have the meaning given such term in
-----------------
Section 20.2.
- ------------
1.145 "Superior Lease" shall have the meaning given such term in
--------------
Section 20.2.
- ------------
1.146 "Superior Mortgage" shall have the meaning given such term in
-----------------
Section 20.2.
- ------------
1.147 "Superior Mortgagee" shall have the meaning given such term in
------------------
Section 20.2.
- ------------
1.148 "Tax Law Change" shall mean a change in the Code (including,
--------------
without limitation, a change in the Treasury regulations promulgated thereunder)
or in the judicial or administrative interpretations of the Code, which in the
opinion of Landlord's counsel will permit Landlord or an Affiliate thereof to
operate the Hotel as a hotel without adversely affecting the REIT's
qualification for taxation as a real estate investment trust under the
applicable provisions of the Code.
1.149 "Telephone Revenues" shall mean all revenues, receipts and income
------------------
of any kind derived from the use of telephone facilities by guests of the hotel,
including, without limitation, revenues from local and long distance calls,
service charges and commissions received from pay stations.
25
<PAGE>
1.150 "Tenant" shall have the meaning given such term in the preambles
------
to this Agreement.
1.151 "Tenant's Assets" shall mean, when calculating Tenant's "net
---------------
worth" hereunder, the following items owned by Tenant free and clear of all
liens, encumbrances, security interests and restrictions, except any security
interest granted to Landlord pursuant to the terms of this Agreement, (a)
working capital available for the day to day operations of the Hotel; (b)
investment grade marketable securities; (c) REIT Shares; (d) OP Units; and (e)
coinvestments made by the Tenant with the Landlord in other hotel projects.
1.152 "Tenant's Personal Property" shall mean (a) all consumables
--------------------------
located at the Hotel and (b) all personal property of Tenant, if any, owned by
Tenant and located at the Leased Property or used in Tenant's business at the
Leased Property and all modifications, replacements, alterations and additions
to such personal property acquired at the expense of Tenant, other than any
items included within the definition of Fixtures or Leased Personal Property.
1.153 "Term" shall mean the Fixed Term.
----
1.154 "Third Party" shall have the meaning given such term in Section
----------- -------
22.22.
- -----
1.155 "Third Party Notice" shall have the meaning given such term in
------------------
Section 22.22.
- -------------
1.156 "Transferor" shall have the meaning given such term in Section
---------- -------
22.22.
- -----
1.157 "Uniform System of Accounts" shall mean A Uniform System of
-------------------------- -------------------
Accounts for Hotels, Ninth Revised Edition, 1996, as published by the Hotel
- -------------------
Association of New York City, as same may be revised, amended or supplemented.
1.158 "Unsuitable for Its Permitted Use" shall mean a state or
--------------------------------
condition of the Hotel such that (a) following any damage or destruction
involving the Hotel, the Hotel cannot be operated in the good faith judgment of
Tenant or the Manager on a commercially practicable basis for its Permitted Use
and it
26
<PAGE>
cannot reasonably be expected to be restored to substantially the same
condition as existed immediately before such damage or destruction, and as
otherwise required by Section 10.2.4, within six (6) months following such
--------------
damage or destruction or such shorter period of time as to which business
interruption insurance is available to cover Rent and other costs related to the
Leased Property following such damage or destruction, or (b) as the result of a
partial taking by Condemnation, the Hotel cannot be operated, in the good faith
judgment of Tenant or the Manager on a commercially practicable basis for its
Permitted Use.
1.159 "Work" shall have the meaning given such term in Section 10.2.2.
---- ------
ARTICLE 2
---------
LEASED PROPERTY AND TERM
------------------------
2.1 Leased Property. Upon and subject to the terms and conditions
---------------
hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord
all of Landlord's right, title and interest to use all of the following
(collectively, the "Leased Property"):
---------------
(a) those certain tracts, pieces and parcels of land, as more
particularly described in Exhibit E, attached hereto and made a part hereof
---------
(the "Land");
----
(b) all buildings, structures and other improvements of every kind
including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking garages,
parking areas and roadways appurtenant to such buildings and structures
presently situated upon the Land (collectively, the "Leased Improvements");
-------------------
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of property,
now or hereafter permanently affixed to
27
<PAGE>
or incorporated into the Leased Improvements, including, without
limitation, all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air and water
pollution control, waste disposal, air-cooling and air-conditioning systems
and apparatus, sprinkler systems and fire and theft protection equipment,
all of which, to the maximum extent permitted by law, are hereby deemed by
the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, but
specifically excluding all items included within the category of Tenant's
Personal Property (collectively, the "Fixtures");
--------
(e) all machinery, equipment, furniture, furnishings, moveable walls
or partitions, trade fixtures or other personal property of any kind or
description used or useful in Tenant's business on or in the Leased
Improvements, and located on or in the Leased Improvements, (including, but
not limited to, computers, beds, bureaus, chiffonniers, chests, chairs,
desks, lamps, mirrors, bookcases, tables, rugs, bedspreads, shower
curtains, linens, towels, facecloths, bathmats, napkins, tablecloths,
chinaware, glassware, flatware, uniforms, carpeting, drapes, draperies,
curtains, shades, venetian blinds, screens, paintings, hangings, pictures,
divans, couches, luggage carts, luggage racks, stools, sofas, pillows,
blankets, foodcarts, cookware, dry cleaning facilities, dining room wagons,
keys or other entry systems, bars, bar fixtures, liquor and other drink
dispensers, icemakers, radios, television sets, video machines, intercom
and paging equipment, electric and electronic equipment, dictating
equipment, private telephone systems, communication equipment, medical
equipment, umbrellas and other shade equipment, barbecues, potted plants,
plants, laundry machines, tools, machinery, switchboards, vacuum cleaning
systems, floor brackets, electrical signs, bulbs, bells, cabinets, lockers,
shelving, spotlighting equipment, dishwashers, garbage disposals, washers
and dryers, boats, motor scooters, bicycles, vehicles, exercise machines,
sporting goods and other recreational equipment, other customary hotel
equipment and other tangible property of every kind and nature whatsoever)
and all modifications, replacements, alterations and
28
<PAGE>
additions to such personal property, except items, if any, included within
the category of Fixtures together with any interests Landlord may have in
leases with respect to all of the foregoing (collectively, the "Leased
------
Personal Property");
-----------------
(f) all of the Leased Intangible Property; and
(g) any and all leases of space (including any security deposits held
by Tenant or the Manager pursuant thereto) in the Leased Improvements to
tenants thereof.
2.2 Condition of Leased Property. Tenant acknowledges receipt and
----------------------------
delivery of possession of the Leased Property and Tenant accepts the Leased
Property in its "as is" condition, subject to the rights of parties in
possession, the existing state of title, including all covenants, conditions,
restrictions, reservations, mineral leases, concessions, easements and other
matters of record or that are visible or apparent on the Leased Property, all
applicable Legal Requirements, the lien of any financing instruments, mortgages
and deeds of trust existing prior to the Commencement Date or permitted by the
terms of this Agreement, and such other matters which would be disclosed by an
inspection of the Leased Property and the record title thereto or by an accurate
survey thereof. TENANT REPRESENTS THAT IT HAS INSPECTED THE LEASED PROPERTY AND
ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT
RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD'S AGENTS OR
EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST
LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY TENANT.
2.3 Fixed Term. The term of this Agreement (the "Fixed Term") shall
---------- ----------
commence on the Commencement Date and shall expire on the Expiration Date.
29
<PAGE>
ARTICLE 3
---------
RENT
----
3.1 Rent. Tenant shall pay, in Dollars without offset, abatement, demand
----
or deduction (unless otherwise expressly provided in this Agreement), Minimum
Rent and Participating Rent to Landlord and Additional Charges to the party to
whom such Additional Charges are payable, during the Term. All payments to
Landlord shall be made by wire transfer of immediately available federal funds
or by other means acceptable to Landlord in its sole discretion. Rent for any
partial Accounting Period shall be prorated on a per diem basis. Minimum Rent
and Participating Rent shall be adjusted (by amendment to this Agreement) upon
(i) the expansion of the number of rooms operated at the Hotel, (ii) the
increase in area of any meeting rooms or similar facilities located at the
Hotel, (iii) a material increase in the facilities available at the Hotel, (iv)
significant renovation of the Hotel, (v) a Material Franchise Change, or (vi) a
significant repositioning of the Hotel.
3.1.1 Minimum Rent. For each Accounting Period or portion thereof,
------------
Tenant shall pay Minimum Rent in arrears prior to 11:00 a.m. New York time on
the first Business Day of the next Accounting Period.
3.1.2 Participating Rent.
------------------
(a) Amount. For each Fiscal Quarter or portion thereof, Tenant shall
------
pay in arrears prior to 11:00 a.m. New York time on or before the twentieth
(20th) day of each Fiscal Quarter additional rent ("Participating Rent")
------------------
with respect to such prior Fiscal Quarter or portion thereof, pursuant to
this Agreement, in an amount, not less than zero, as set forth on Exhibit
-------
A. In calculating Participating Rent, Gross Revenues attributable to hotel
packages or certificates including, but not limited to, frequent traveler
programs, gift certificate programs, all inclusive packages or
certificates, or other similar programs or packages, shall be allocated to
the respective revenues categories in accordance with the Uniform System of
Accounts. The obligation to pay Participating Rent shall survive the
expiration or earlier termination of the Term,
30
<PAGE>
and a final reconciliation, taking into account, among other relevant
adjustments, any adjustments which are accrued after such expiration or
termination date but which related to Participating Rent accrued prior to
such termination date, shall be made not later than sixty (60) days after
such expiration or termination date.
(b) Officers Certificate. An Officer's Certificate, in form and
--------------------
substance reasonably acceptable to Landlord, setting forth the calculation
of Participating Rent due and payable for the applicable Fiscal Quarter
shall be delivered to Landlord with each payment of Participating Rent.
(c) Reconciliation of Participating Rent. On or before January 31, of
------------------------------------
each year, commencing January 31, [____], Tenant shall deliver to Landlord
an Officer's Certificate, in form and substance reasonably acceptable to
Landlord, setting forth the Gross Revenues for the Leased Property for such
preceding Lease Year, together with an audit of Tenant's revenues for the
preceding Lease Year, conducted by a nationally recognized firm of
independent certified public accountants proposed by Tenant and approved by
Landlord, which approval shall not be unreasonably withheld or delayed. If
the annual Participating Rent for such preceding Lease Year as shown in the
Officer's Certificate exceeds the amount previously paid with respect
thereto by Tenant, Tenant shall pay such excess to Landlord at such time as
the Officer's Certificate is delivered, together with interest at the
Interest Rate, which interest shall accrue from the date that such payment
was due until the date that such certificate is required to be delivered
and, thereafter, such interest shall accrue at the Overdue Rate, until the
amount of such difference shall be paid or otherwise discharged. If the
annual Participating Rent for such preceding Lease Year as shown in the
Officer's Certificate is less than the amount previously paid with respect
thereto by Tenant, provided that no Event of Default shall have occurred
and be continuing, Landlord shall grant Tenant a credit against
Participating Rent next coming due in the amount of such difference. If
such credit cannot be made because the Term has expired prior to
application in full thereof, provided no Event of Default has occurred and
is continuing, Landlord shall pay, within fifteen (15)
31
<PAGE>
Business Days of the date of determination that such credit is due to
Tenant, the unapplied balance of such credit to Tenant.
(d) Confirmation of Participating Rent. Tenant shall utilize, or
----------------------------------
cause to be utilized, an accounting system for the Leased Property in
accordance with its usual and customary practices and in accordance with
GAAP and the Uniform System of Accounts, which will accurately record all
Gross Revenues and revenue categories specified in Exhibit A and Tenant
---------
shall retain, for at least seven (7) years after the expiration of each
Lease Year, or such longer period as may be required by Applicable Laws,
reasonably adequate records conforming to such accounting system showing
all Gross Revenues for such Lease Year. Landlord, at its own expense except
as provided hereinbelow, shall have the right, exercisable by Notice to
Tenant within seven (7) years after receipt of the applicable Officer's
Certificate, by its accountants or representatives to audit the information
set forth in the Officer's Certificate referred to in subparagraph (c)
above and, in connection with such audits, to examine Tenant's and the
Manager's books and records with respect thereto (including supporting data
and sales and excise tax returns). If any such audit discloses a deficiency
in the payment of Participating Rent, Tenant shall forthwith pay to
Landlord the amount of the deficiency, together with interest at the
Interest Rate, from the date such payment should have been made to the date
of payment thereof. If Landlord did not receive at least ninety-five
percent (95%) of the Participating Rent payable with respect to such Lease
Year, Tenant shall pay the reasonable cost of such audit and examination.
If any such audit discloses that Tenant paid more Participating Rent for
any Lease Year than was due hereunder, provided no Event of Default has
occurred and is continuing, Landlord shall grant Tenant a credit as
provided in subparagraph (c) above. Any proprietary information obtained by
Landlord with respect to Tenant or the Manager pursuant to the provisions
of this Agreement shall be treated as confidential, except that such
information may be used, subject to appropriate confidentiality safeguards,
in any litigation between the parties and except further that Landlord may
disclose such information to its prospective lenders, provided that
32
<PAGE>
Landlord shall direct and obtain the agreement of such lenders to maintain
such information as confidential. The obligations of Tenant and Landlord
contained in this Section 3.1.2 shall survive the expiration or earlier
-------------
termination of this Agreement.
3.1.3 Additional Charges. In addition to the Minimum Rent and
------------------
Participating Rent payable hereunder, Tenant shall pay to the appropriate
parties and discharge as and when due and payable the following (collectively,
"Additional Charges"):
- -------------------
(a) Impositions. Subject to Article 8 relating to permitted contests,
----------- ---------
Tenant shall pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost (other than any opportunity cost as a result of a
failure to take advantage of any discount for early payment) may be added
for non-payment, such payments to be made directly to the taxing
authorities where feasible, and shall promptly, upon request, furnish to
Landlord copies of official receipts or other reasonably satisfactory proof
evidencing such payments. If any such Imposition may, at the option of the
taxpayer, lawfully be paid in installments (whether or not interest shall
accrue on the unpaid balance of such Imposition), Tenant may exercise the
option to pay the same (and any accrued interest on the unpaid balance of
such Imposition) in installments and, in such event, shall pay such
installments during the Term as the same become due and before any fine,
penalty, premium, further interest or cost may be added thereto. Landlord,
at its expense, shall, to the extent required or permitted by Applicable
Law, prepare and file all tax returns and pay all taxes due in respect of
real estate taxes on the Leased Property, and all taxes due in respect of
Landlord's income, gross receipts, sales and use, single business,
transaction privilege, rent, ad valorem, franchise taxes and taxes on its
capital stock, and Tenant, at its expense, shall, to the extent required or
permitted by Applicable Laws and regulations, prepare and file all other
tax returns and reports in respect of any Imposition as may be required by
Government Agencies. Provided no Event of Default shall have occurred and
be continuing, if any refund shall be due from any taxing authority in
respect of any Imposition paid by Tenant, the
33
<PAGE>
same shall be paid over to or retained by Tenant. Landlord and Tenant
shall, upon request of the other, provide such data as is maintained by the
party to whom the request is made with respect to the Leased Property as
may be necessary to prepare any required returns and reports. In the event
Government Agencies classify any property covered by this Agreement as
personal property, Tenant shall file all personal property tax returns in
such jurisdictions where it may legally so file. Each party shall, to the
extent it possesses the same, provide the other, upon request, with cost
and depreciation records necessary for filing returns for any property so
classified as personal property. Where Landlord is legally required to file
personal property tax returns for property covered by this Agreement,
Landlord shall provide Tenant with copies of assessment notices in
sufficient time for Tenant to file a protest. All Impositions assessed
against such personal property shall be (irrespective of whether Landlord
or Tenant shall file the relevant return) paid by Tenant not later than the
last date on which the same may be made without interest or penalty.
Landlord shall give prompt Notice to Tenant of all Impositions payable by
Tenant hereunder of which Landlord at any time has knowledge; provided,
--------
however, that Landlord's failure to give any such notice shall in no way
-------
diminish Tenant's obligation hereunder to pay such Impositions (except that
Landlord shall be responsible for any interest or penalties incurred as a
result of Landlord's failure promptly to forward the same).
(b) Utility Charges. Tenant shall pay or cause to be paid all charges
---------------
for electricity, power, gas, oil, water and other utilities used in
connection with the Leased Property.
(c) Insurance Premiums. Tenant shall pay or cause to be paid all
------------------
premiums for the insurance coverage required to be maintained pursuant to
Article 9.
---------
(d) Other Charges. Tenant shall pay or cause to be paid all other
-------------
amounts, liabilities and obligations and all amounts payable under or with
respect to the Management Agreement and all agreements to indemnify
Landlord under Sections 4.3.2 and 9.7.
----------------------
34
<PAGE>
(e) Gross Operating Expenses. Tenant shall pay or cause to be paid
------------------------
all Gross Operating Expenses in connection with the Leased Property.
(f) Condominium Dues. Tenant shall pay or cause to be paid all
----------------
Condominium Dues in connection with the Leased Property.
If Tenant shall fail to pay any of the amounts payable under paragraphs (a)
through (e), above, Landlord may, upon ten (10) days notice to Tenant (which
notice may be oral), pay such charges, together with interest and penalties due
with respect thereto, and Tenant shall reimburse Landlord therefor together with
interest at the Interest Rate, upon demand, as Additional Charges.
3.1.4 CPI Adjustments. For each Lease Year during the Term beginning
---------------
with the Lease Year commencing January [ ] the Minimum Rent then in effect,
the Annual Room Revenues First Break Point, the Annual Room Revenues Second
Break Point (each as defined in Exhibit A and together, the "Annual Room
--------- -----------
Revenues Break Points"), the Annual Food and Beverage Sales First Break Point,
- ---------------------
the Annual Food and Beverage Sales Second Break Point (each as defined in
Exhibit A and together, the "Annual Food and Beverage Sales Break Points"), the
- --------- -------------------------------------------
Annual Telephone Revenues First Break Point, the Annual Telephone Revenues
Second Break Point (each as defined in Exhibit A and together, the "Annual
--------- ------
Telephone Revenues Break Points"), the Annual Golf Sales First Break Point, the
- -------------------------------
Annual Golf Sales Second Break Point (each as defined in Exhibit A and together,
---------
the "Annual Golf Sales Break Points"), the Annual Retail Sales First Break
------------------------------
Point, the Annual Retail Sales Second Break Point (each as defined in Exhibit A
---------
and together, the "Annual Retail Sales Break Points"), the Annual Other Income
--------------------------------
First Break Point, the Annual Other Income Second Break Point (each as defined
in Exhibit A and together, the "Annual Other Income Break Points"), the Annual
--------- --------------------------------
Parking Sales First Break Point, the Annual Parking Sales Second Break Point
(each as defined in Exhibit A and together, the "Annual Parking Sales Break
--------- --------------------------
Points") then included in the Revenues Computation shall be increased as
- ------
follows:
(a) For the Lease Year commencing January 1, 1999, and for each Lease
Year thereafter during the Term, the CPI in
35
<PAGE>
effect for the month of December immediately preceding the new Lease Year
(the "Measurement Date") shall be divided by the CPI in effect for the
----------------
month of December in the prior Fiscal Year;
(b) The new Minimum Rent for the Lease Year commencing January [_____]
and for each Lease Year thereafter shall be the product of the Minimum Rent
in effect in the most recently ended Lease Year and the quotient obtained
under subparagraph (a) above;
(c) The new Annual Room Revenues Break Points in the Revenues
Computation for the Lease Year commencing January [_______] and for each
Lease Year thereafter shall be the product of the Annual Room Revenues
Break Points in effect in the most recently ended Lease Year and the
quotient obtained in subparagraph (a) above;
(d) The new Annual Food and Beverage Sales Break Points in the
Revenues Computation for the Lease Year commencing January [_______] and
for each Lease Year thereafter shall be the product of the Annual Food and
Beverage Sales Break Points in effect in the most recently ended Lease Year
and the quotient obtained in subparagraph (a) above;
(e) The new Annual Telephone Revenues Break Points in the Revenues
Computation for the Lease Year commencing January [_______] shall be the
product of the Annual Telephone Revenues Break Points in effect for the
most recently ended Lease Year and the quotient obtained in subparagraph
(a) above;
(f) The new Annual Golf Sales Break Points in the Revenues Computation
for the Lease Year commencing January [_______] and for each Lease Year
thereafter shall be the product of the Annual Golf Sales Break Points in
effect in the most recently ended Lease Year and the quotient obtained in
subparagraph (a) above;
(g) The new Annual Retail Sales Break Points in the Revenues
Computation for the Lease Year commencing January [_______] and for each
Lease Year thereafter shall be the
36
<PAGE>
product of the Annual Retail Sales Break Points in effect in the most
recently ended Lease Year and the quotient obtained in subparagraph (a)
above;
(h) The new Annual Parking Sales Break Points in the Revenues
Computation for the Lease Year commencing January [_______] shall be the
product of the Annual Parking Sales Break Points in effect in the most
recently ended Lease Year and the quotient obtained in subparagraph (a)
above; and
(i) The new Annual Other Income Break Points in the Revenues
Computation for the Lease Year commencing January [_______] and for each
Lease Year thereafter shall be the product of the Annual Other Income Break
Points in effect in the most recently ended Lease Year and the quotient
obtained in subparagraph (a) above.
Adjustments calculated as set forth above in the Minimum Rent, the Annual
Room Revenues Break Points, the Annual Food and Beverage Sales Break Points, the
Annual Telephone Revenues Break Points, the Annual Golf Sales Break Points, the
Annual Retail Sales Break Points, the Annual Other Income Break Points, and the
Annual Parking Sales Break Points shall be effective on the first day of each
Lease Year to which such adjusted amounts apply. If Rent is paid prior to the
determination of the amount of any adjustment to Minimum Rent, the Annual Room
Revenues Break Points, the Annual Food and Beverage Sales Break Points, the
Annual Telephone Revenues Break Points, the Annual Golf Sales Break Points, the
Annual Retail Sales Break Points, the Annual Other Income Break Points, or the
Annual Parking Sales Break Points applicable for such period, whether because of
a delay in the publication of the CPI for the Measurement Date or because of any
other reason, payment adjustments for any shortfall in or overpayment of Rent
paid shall be made with the first Minimum Rent and Participating Rent payments
due after the amount of the adjustments are determined. If (1) a significant
change is made in the number or nature (or both) of items used in determining
the CPI, or (2) the CPI shall be discontinued for any reason, the Bureau of
Labor Statistics shall be requested to furnish a new index comparable to the
CPI, together with information which will make possible a conversion to the new
index in computing the adjusted Minimum Rent, the Annual Room Revenues Break
Points, the Annual Food and Beverage Sales Break Points, the Annual Telephone
37
<PAGE>
Revenues Break Points, the Annual Golf Sales Break Points, the Annual Retail
Sales Break Points, the Annual Other Income Break Points, and the Annual Parking
Sales Break Points hereunder. If for any reason the Bureau of Labor Statistics
does not furnish such an index and such information, the parties will instead
mutually select, accept and use such other index or comparable statistics on the
cost of living in various cities that is computed and published by an agency of
the United States of America or a responsible financial periodical of recognized
authority. In no event shall the Minimum Rent, the Annual Room Revenues Break
Points, the Annual Food and Beverage Sales Break Points, the Annual Telephone
Revenues Break Points, the Annual Golf Sales Break Points, the Annual Retail
Sales Break Points, the Annual Other Income Break Points, or the Annual Parking
Sales Break Points be reduced as a result of any changes in the CPI or changes
to the calculation of CPI.
3.2 Late Payment of Rent, Etc. If any installment of Minimum Rent,
--------------------------
Participating Rent or Additional Charges (but only as to those Additional
Charges which are payable directly to Landlord) shall not be paid within ten
(10) days after its due date, Tenant shall pay Landlord, on demand, as
Additional Charges, a late charge (to the extent permitted by law) computed at
the Overdue Rate on the amount of such installment, from the due date of such
installment to the date of payment thereof. To the extent that Tenant pays any
Additional Charges directly to Landlord or any Hotel Mortgagee pursuant to any
requirement of this Agreement, Tenant shall be relieved of its obligation to pay
such Additional Charges to the Entity to which they would otherwise be due.
In the event of any failure by Tenant to pay any Additional Charges when
due, except as expressly provided in Section 3.1.3(a), Tenant shall promptly pay
----------------
and discharge, as Additional Charges, every fine, penalty, interest and cost
which may be added for non-payment or late payment of such items. Landlord
shall have all legal, equitable and contractual rights, powers and remedies
provided either in this Agreement or by statute or otherwise in the case of non-
payment of the Additional Charges as in the case of non-payment of the Minimum
Rent and Participating Rent.
38
<PAGE>
3.3 Net Lease. The Rent shall be absolutely net to Landlord so that this
---------
Agreement shall yield to Landlord the full amount of the installments or amounts
of the Rent throughout the Term, subject to any other provisions of this
Agreement which expressly provide otherwise, including those provisions for
adjustment or abatement of such Rent.
3.4 No Termination, Abatement, Etc. Except as otherwise specifically
-------------------------------
provided in this Agreement, each of Landlord and Tenant, to the maximum extent
permitted by law, shall remain bound by this Agreement in accordance with its
terms and shall not take any action without the consent of the other to modify,
surrender or terminate this Agreement. In addition, except as otherwise
expressly provided in this Agreement, Tenant shall not seek, or be entitled to,
any abatement, deduction, deferment or reduction of the Rent, or set-off against
the Rent, nor shall the respective obligations of Landlord and Tenant be
otherwise affected by reason of (a) any damage to or destruction of the Leased
Property or any portion thereof from whatever cause or any Condemnation; (b) any
claim which Tenant may have against Landlord by reason of any default (other
than a monetary default) or breach of any warranty by Landlord under this
Agreement or any other agreement between Landlord and Tenant, or to which
Landlord and Tenant are parties; (c) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Landlord or any assignee or transferee of Landlord; or (d)
for any other cause whether similar or dissimilar to any of the foregoing (other
than a monetary default by Landlord). Except as otherwise specifically provided
in this Agreement, Tenant hereby waives all rights arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law, to (a)
modify, surrender or terminate this Agreement or quit or surrender the Leased
Property or any portion thereof or (b) entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable or other
obligations to be performed by Tenant hereunder. The obligations of each party
hereunder shall be separate and independent covenants and agreements, and the
Rent and all other sums payable by Tenant hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Agreement. In any instance where,
after the occurrence of an Event of Default, Landlord retains funds which, but
for the
39
<PAGE>
occurrence of such Event of Default, would be payable to Tenant, Landlord shall
refund such funds to Tenant to the extent the amount thereof exceeds the amount
necessary to compensate Landlord for any cost, loss or damage incurred in
connection with such Event of Default.
ARTICLE 4
---------
USE OF THE LEASED PROPERTY
--------------------------
4.1 Permitted Use.
-------------
4.1.1 Permitted Use. Tenant shall, at all times during the term and
-------------
at any other time that Tenant shall be in possession of the Leased Property,
continuously use and operate, and cause the Manager to use and operate, the
Leased Property as a commercial hotel which meets or exceeds the Hotel Standard
and any uses incidental thereto. Subject to Section 16.3, Tenant shall not use
------------
(and shall cause the Manager not to use) the Leased Property or any portion
thereof for any other use without the prior written consent of Landlord which
may be withheld or granted in Landlord's sole and absolute discretion. No use
shall be made or permitted to be made of the Leased Property and no acts shall
be done thereon which will cause the cancellation of any insurance policy
covering the Leased Property or any part thereof (unless another adequate policy
is available), nor shall Tenant sell or otherwise provide or permit to be kept,
used or sold in or about the Leased Property any article which may be prohibited
by law or by the standard form of fire insurance policies, or any other
insurance policies required to be carried hereunder, or fire underwriters'
regulations. Tenant shall, at its sole cost, comply (or cause the Manager to
comply) with all Insurance Requirements for which Tenant is responsible pursuant
to Article 9 hereof. Tenant shall not take or omit to take (and Tenant shall
cause the Manager not to take or omit to take) any action, the taking or
omission of which materially impairs the value or the usefulness of the Leased
Property or any part thereof for its Permitted Use in accordance with the
Franchise Agreement and the Hotel Standard.
4.1.2 Necessary Approvals. Tenant shall proceed with all due
-------------------
diligence and exercise best efforts to obtain and
40
<PAGE>
maintain, and shall cause the Manager to obtain and maintain, all approvals and
Licenses necessary to use and operate, for its Permitted Use, the Leased
Property and the Hotel located thereon under applicable law, and, if requested
by Landlord, shall obtain, in Tenant's name, any liquor licenses required for
the use and operation of the Hotel.
4.1.3 Lawful Use, Etc. Tenant shall not, and shall cause the Manager
----------------
not to, use or suffer or permit the use of the Leased Property or Tenant's
Personal Property, if any, for any unlawful purpose. Tenant shall not, and
shall cause the Manager not to, commit or suffer to be committed any waste on
the Leased Property, or in the Hotel, nor shall Tenant cause or permit any
unlawful nuisance thereon or therein. Tenant shall not, and shall cause the
Manager not to, suffer nor permit the Leased Property, or any portion thereof,
to be used in such a manner as (a) might reasonably impair Landlord's title
thereto or to any portion thereof, or (b) may reasonably allow a claim or claims
for adverse usage or adverse possession by the public, as such, or of implied
dedication of the Leased Property or any portion thereof.
4.2 Compliance with Legal/Insurance Requirements, Etc. Subject to the
--------------------------------------------------
provisions of Article 9, Tenant, at its sole expense, shall (or shall cause the
---------
Manager to) comply with Legal Requirements and Insurance Requirements in respect
of the use, operation, maintenance, repair, alteration and restoration of the
Leased Property and with the terms and conditions of any ground lease affecting
the Leased Property, and procure, maintain and comply with all appropriate
licenses, and other authorizations and agreements required for any use of the
Leased Property and Tenant's Personal Property, if any, then being made, and for
the proper erection, installation, operation and maintenance of the Leased
Property or any part thereof.
4.3 Environmental Matters.
---------------------
4.3.1 Restriction on Use, Etc. During the Term and any other time
------------------------
that Tenant shall be in possession of the Leased Property, Tenant shall not (and
shall cause the Manager not to) store, spill upon, dispose of or transfer to or
from the Leased Property any Hazardous Substance, except in compliance with all
Applicable Laws. During the Term and any other time that Tenant
41
<PAGE>
shall be in possession of the Leased Property, Tenant shall maintain (and shall
cause the Manager to maintain) the Leased Property at all times free of any
Hazardous Substance (except in compliance with all Applicable Laws). Tenant
shall promptly: (a) upon receipt of notice or knowledge and shall cause the
Manager upon receipt of notice or knowledge promptly to, notify Landlord in
writing of any material change in the nature or extent of Hazardous Substances
at the Leased Property, (b) transmit to Landlord a copy of any "Community Right
to Know" report which is required to be filed by Tenant or the Manager with
respect to the Leased Property pursuant to any Applicable Law, (c) transmit to
Landlord copies of any citations, orders, notices or other governmental
communications received by Tenant or the Manager or their respective agents or
representatives with respect thereto (collectively, "Environmental Notice"),
--------------------
which Environmental Notice requires a written response or any action to be taken
and/or if such Environmental Notice gives notice of and/or presents a material
risk of any material violation of any Applicable Law and/or presents a material
risk of any material cost, expense, loss or damage (an "Environmental
-------------
Obligation"), (d) observe and comply (and cause the Manager to observe and
- ----------
comply) with all Applicable Laws relating to the use, maintenance and disposal
of Hazardous Substances and all orders or directives from any official, court or
agency of competent jurisdiction relating to the use or maintenance or requiring
the removal, treatment, containment or other disposition thereof, and (e) pay or
otherwise dispose of any fine, charge or Imposition related thereto, unless
Tenant or the Manager shall contest the same in good faith and by appropriate
proceedings and the right to use and the value of the Leased Property is not
materially and adversely affected thereby. If, at any time prior to the
termination of this Agreement, Hazardous Substances (other than those maintained
in accordance with Applicable Laws) are discovered on the Leased Property,
subject to Tenant's and the Manager's right to contest any Claim with respect to
the same in accordance with Article 8, Tenant shall take (and shall cause the
---------
Manager to take) all actions and incur any and all expenses, as may be
reasonably necessary and as may be required by any Government Agency, (i) to
clean up and remove from and about the Leased Property all Hazardous Substances
thereon, (ii) to contain and prevent any further release or threat of release of
Hazardous Substances on or about the Leased Property and (iii) to use good
42
<PAGE>
faith efforts to eliminate any further release or
threat of release of Hazardous Substances on or about the Leased Property.
4.3.2 Indemnification of Landlord. Tenant shall protect, indemnify
---------------------------
and hold harmless Landlord, the REIT, Advisors, and each Hotel Mortgagee, their
trustees, officers, agents, employees and beneficiaries, and any of their
respective successors or assigns with respect to this Agreement (collectively,
the "Indemnitees" and, individually, an "Indemnitee") for, from and against any
----------- ----------
and all debts, liens, claims, causes of action, administrative orders or
notices, costs, fines, penalties or expenses (including, without
limitation, reasonable attorney's fees and expenses) imposed upon, incurred by
or asserted against any Indemnitee resulting from, either directly or
indirectly, the presence during the Term (or any other time Tenant shall be in
possession of the Leased Property) in, upon or under the soil or ground water of
the Leased Property or any properties surrounding the Leased Property of any
Hazardous Substances in violation of any Applicable Law or otherwise except to
the extent the same arise (i) from the gross negligence or willful misconduct of
Landlord or any other Indemnitee or (ii) the existence thereof on the Leased
Property prior to the Commencement Date. Tenant's duty herein includes, but is
not limited to, costs associated with personal injury or property damage claims
as a result of the presence prior to the expiration or sooner termination of the
Term and the surrender of the Leased Property to Landlord in accordance with the
terms of this Agreement of Hazardous Substances in, upon or under the soil or
ground water of the Leased Property in violation of any Applicable Law. Upon
Notice from Landlord and any other of the Indemnitees, Tenant shall undertake
the defense (with counsel reasonably acceptable to Landlord), at Tenant's sole
cost and expense, of any indemnification duties set forth herein. Tenant shall,
upon demand, pay to Landlord, as an Additional Charge, any cost, expense, loss
or damage (including, without limitation, reasonable attorneys' fees) incurred
by Landlord and arising from a failure of Tenant strictly to observe and perform
the requirements of this Section 4.3, which amounts shall bear interest from the
-----------
date ten (10) days after written demand therefor is given to Tenant until paid
by Tenant to Landlord at the Overdue Rate.
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4.3.3 Survival. The provisions of this Section 4.3 shall survive the
-------- -----------
expiration or sooner termination of this Agreement.
ARTICLE 5
---------
MAINTENANCE AND REPAIRS
-----------------------
5.1 Maintenance and Repair.
----------------------
5.1.1 Tenant's Obligations. Tenant shall, at its sole cost and
--------------------
expense, or shall cause the Manager to, keep the Leased Property and all private
roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal
Property, if any) in good order and repair, subject to ordinary wear and tear
(whether or not the need for such repairs occurs as a result of Tenant's or the
Manager's use, any prior use, the elements or the age of the Leased Property or
Tenant's Personal Property, if any, or any portion thereof), and shall promptly
make (or cause the Manager to make) all necessary and appropriate repairs and
replacements thereto of every kind and nature, whether interior or exterior,
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to the commencement of the Term (concealed or
otherwise); provided, however, Tenant shall not be obligated to make Capital
Expenditures with respect to the Leased Property. All repairs shall be made in
a good, workmanlike manner, consistent with the Manager's and industry standards
for like hotels in like locales, in accordance with all Applicable Laws relating
to any such work. Tenant shall not take or omit to take (and shall cause the
Manager not to take or omit to take) any action, the taking or omission of which
would materially and adversely impair the value or the usefulness of the Leased
Property or any part thereof for its Permitted Use in accordance with the
Franchise Agreement, the Hotel Standard, the Ground Lease, and the Condominium
Declaration. Tenant's obligations under this Section 5.1.1 shall be limited in
-------------
the event of any casualty or Condemnation as set forth in Sections 10.2 and 11.2
----------------------
and Tenant's obligations with respect to Hazardous Substances are as set forth
in Section 4.3.
-----------
5.1.2 Landlord's Obligations.
----------------------
44
<PAGE>
(a) Except as otherwise expressly provided in Sections 5.1.2(b) and
---------------------
10.2.1, or as otherwise required under the Ground Lease or Condominium
------
Declaration, Landlord shall not, under any circumstances, be required to
build or rebuild any improvement on the Leased Property, or to make any
repairs (except for structural repairs), replacements, alterations,
restorations or renewals of any nature or description to the Leased
Property, whether ordinary or extraordinary, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, or to maintain the
Leased Property in any way. Tenant hereby waives, to the maximum extent
permitted by law, the right to make repairs at the expense of Landlord
pursuant to any law in effect on the date hereof or hereafter enacted.
Landlord shall have the right to give, record and post, as appropriate,
notices of nonrespon sibility under any mechanic's lien laws now or
hereafter existing.
(b) If Tenant is required to make any expenditure in connection with
any Capital Repair which is required as a result of a fire, any other
casualty or any other events, circumstances or conditions which threaten
the safety or physical well-being of the Hotel's guests or employees or
which involve the risk of material property damage or material loss to the
Hotel or which are required to prevent a material and detrimental economic
loss to the Hotel (collectively, "Emergency Repairs") and the amount of
-----------------
such expenditures exceeds the amount on deposit in the Reserve Fund, Tenant
may, at its election, give Landlord Notice thereof, which Notice shall set
forth, in reasonable detail, the nature of the required Emergency Repair,
the estimated cost thereof and such other information with respect thereto
as Landlord may reasonably require. Provided that no Event of Default shall
have occurred and be continuing and Tenant shall otherwise comply with the
applicable provisions of Article 6, Landlord shall, within five (5)
---------
Business Days after such Notice, subject to and in accordance with the
applicable provisions of Article 6, disburse or, if costs for Emergency
---------
Repairs have already been incurred by Tenant, reimburse any funds necessary
to complete Emergency Repairs which are in excess of the amount on deposit
in the Reserve Fund to Tenant (or, if Tenant shall so elect, directly to
45
<PAGE>
the Manager or any other Person performing the required work).
5.1.3 Nonresponsibility of Landlord, Etc. All materialmen,
-----------------------------------
contractors, artisans, mechanics and laborers and other persons contracting with
Tenant with respect to the Leased Property, or any part thereof, are hereby
charged with notice that liens on the Leased Property or on Landlord's interest
therein are expressly prohibited and that they must look solely to Tenant to
secure payment for any work done or material furnished by Tenant, the Manager or
for any other purpose during the term of this Agreement. Nothing contained in
this Agreement shall be deemed or construed in any way as constituting the
consent or request of Landlord, express or implied, by inference or otherwise,
to any contractor, subcontractor, laborer or materialmen for the performance of
any labor or the furnishing of any materials for any alteration, addition,
improvement or repair to the Leased Property or any part thereof or as giving
Tenant any right, power or authority to contract for or permit the rendering of
any services or the furnishing of any materials that would give rise to the
filing of any lien against the Leased Property or any part thereof nor to
subject Landlord's estate in the Leased Property or any part thereof to
liability under any mechanic's lien law in any way, it being expressly
understood that Landlord's estate shall not be subject to any such liability.
5.2 Tenant's Personal Property. Tenant shall provide and maintain
--------------------------
throughout the Term all such Tenant's Personal Property as shall be necessary in
order to operate in compliance with applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the industry
for the Permitted Use and all of such Personal Property shall, upon the
expiration or earlier termination of this Agreement, become the property of
Landlord. If, from and after the Commencement Date, Tenant acquires an interest
in any item of tangible personal property on, or in connection with, the Leased
Property which belongs to any Person other than Tenant, Tenant shall require the
agreements, permitting such use to provide that Landlord or its designee may
assume Tenant's rights and obligations under such agreement upon the termination
of this
Agreement and the assumption of management or operation of the Hotel by Landlord
or its designee. Upon termination of the Term,
46
<PAGE>
Tenant shall deliver all of Tenant's Personal Property free of all liens and/or
encumbrances to Landlord.
5.3 Surrender. Upon the expiration or sooner termination of this
---------
Agreement, Tenant shall vacate, surrender, and deliver to Landlord the
following: (i) the Leased Property, (ii) the Tenant's Personal Property, (iii)
the Leased Personal Property, (iv) the Minimum Inventory, and (v) the Minimum
Working Capital. Items (i) through (iv) shall be delivered in substantially the
same condition as such items were in on the Commencement Date, subject to
ordinary wear and tear and except as repaired, rebuilt, restored, altered or
added to as permitted or required by the provisions of this Agreement (and
casualty and Condemnation, in the event that this Agreement is terminated
following a casualty or total Condemnation in accordance with Article 10 or
----------
Article 11). In addition, upon the expiration or earlier termination of this
- ----------
Agreement, Tenant shall, at Landlord's sole cost and expense, use its good faith
efforts to transfer to and cooperate with Landlord or Landlord's nominee in
connection with the processing of all applications for licenses, operating
permits and other governmental authorizations and all contracts, including
contracts with governmental or quasi-governmental Entities which may be
necessary for the use and operation of the Hotel as then operated. After the
Expiration Date or the earlier termination of this Agreement, Landlord agrees to
honor all reservations and bookings made by Tenant in accordance with the Hotel
Standard and reasonable commercial practice.
5.4 Management Agreement. Landlord shall have the right to approve the
--------------------
initial Manager and the form of the Management Agreement, in its sole and
absolute discretion. Tenant shall, at its sole cost and expense, perform all of
the obligations of "Owner" under the Management Agreement. Tenant or Manager
shall be the employer with respect to any and all employees located at the
Leased Property. Tenant shall, at all times, direct the Manager to perform all
of the Manager's obligations under the Management Agreement. Tenant shall not
amend or modify the Management Agreement without Landlord's prior written
consent, which consent shall not unreasonably be withheld, delayed or
conditioned. Tenant shall not take any action, grant any consent, or, except as
provided in the Management Agreement, permit any action under the Management
Agreement without the
47
<PAGE>
prior written consent of Landlord, which consent will not be unreasonably
withheld. Except as provided in the Management Agreement, Tenant shall not,
without the Landlord's written approval, which approval may be withheld or
granted in Landlord's sole and absolute discretion, agree to: (i) any change in
the Manager; (ii) any change in the Management Agreement; (iii) terminate the
Management Agreement; or (iv) permit the Manager to assign the Management
Agreement. If Landlord shall perform any obligations of "Owner" under the
Management Agreement (which Landlord may do subject to Section 12.5), the cost
------------
of such performance shall be payable, upon demand, by Tenant to Landlord with
interest accruing from the date which is ten (10) days after the demand date at
the Overdue Rate and Landlord shall have the same rights and remedies for
failure to pay such costs on demand as for Tenant's failure to pay Minimum Rent.
5.5 Management Fees. Each Management Agreement shall provide that all
---------------
management fees payable thereunder shall (i) not exceed [_______] [__] percent
of Gross Revenues and (ii) shall be subordinate to Tenant's obligation to pay
Rent hereunder.
5.6 Minimum Inventory. On the Commencement Date and thereafter during the
-----------------
Term, Tenant shall, at its sole cost and expense, furnish and maintain at the
Leased Property all Inventory necessary or desirable for the operation of the
Leased Property in accordance with the provisions of this Agreement, the
Franchise Agreement, the Hotel Standard and reasonable commercial practice. On
the Commencement Date and at the commencement of each calendar year, Tenant
shall submit to Landlord a detailed list of all Inventory. Tenant, at its sole
cost and expense, shall repair, maintain and replace the Inventory so that the
greater of (x) the Minimum Inventory, or (y) the remaining Inventory, is
delivered to Landlord on the date of expiration or the earlier termination of
this Agreement.
ARTICLE 6
---------
IMPROVEMENTS, ETC.
------------------
6.1 Improvements to the Leased Property. Tenant shall not make, construct
-----------------------------------
or install (and shall cause the Manager not to construct or install) any Capital
Repairs without, in each instance, obtaining Landlord's prior written consent,
which
48
<PAGE>
consent shall not be unreasonably withheld, delayed or conditioned
provided that (a) construction or installation of the same would not adversely
affect or violate any Legal Requirement, Insurance Requirement, the Franchise
Agreement, the Ground Lease, or the Condominium Declaration applicable to the
Leased Property; (b) such Capital Repairs will not affect the structural
integrity of the Leased Improvements or adversely affect any of the mechanical
or electrical systems of the Leased Improvements; (c) such Capital Repairs are
to be completed prior to the expiration of the Term in a good and workmanlike
manner; (d) such Capital Repairs do not reduce the value of the Leased
Improvements; (e) no Event of Default has occurred and is existing; and (f)
Landlord shall have received an Officer's Certificate certifying as to the
satisfaction of the conditions set out in clauses (a) through (g) above;
provided, however, that no such consent shall be required in the event an
- -------- -------
Emergency Repair is required. Prior to commencing construction of any Capital
Repair, Tenant shall submit, or shall cause the Manager to submit, to Landlord,
in writing, a proposal setting forth, in reasonable detail, any such proposed
improvement (including a detailed cost analysis of such proposed improvements)
and shall provide to Landlord such plans and specifications, and such permits,
licenses, contracts and such other information concerning the same as Landlord
may reasonably request. Landlord shall have thirty (30) days to review all
materials submitted to Landlord in connection with any such proposal including,
without limitation, necessary bids for such Capital Repairs. Landlord shall have
the right to approve any contracts with Tenant's Parents or Affiliates in its
sole and absolute discretion. Without limiting the generality of the foregoing,
such proposal shall indicate (a) the approximate projected cost of constructing
such proposed improvement and the use or uses to which it will be put and (b)
the financial feasibility of such proposed improvement (including, without
limitation, the projected return of such proposed improvements and the schedule
for development of such proposed improvements). No Capital Repair shall be made
which would tie in or connect any Leased Improvement with any other improvements
on property adjacent to the Leased Property (and not part of the Land)
including, without limitation, tie-ins of buildings or other structures or
utilities without Landlord's prior written consent, which consent may be
withheld or granted in Landlord's sole and absolute discretion. Tenant shall not
finance, and shall cause the Manager not to finance, the cost of any
construction of such
49
<PAGE>
improvement by the granting of a lien on or security interest in the Leased
Property or such improvement, or Tenant's interest therein, without the prior
written consent of Landlord, which consent may be withheld by Landlord in
Landlord's sole and absolute discretion. Any such improvements shall, upon the
expiration or sooner termination of this Agreement, remain or pass to and become
the property of Landlord, free and clear of all encumbrances other than
Permitted Encumbrances.
6.2 Salvage. Any sums received from the sale of any and all materials or
-------
property, real or personal (collectively "Salvage"), shall be deposited into the
-------
Reserve Fund.
6.3 Reserve Fund. Landlord shall establish and maintain a reserve account
------------
(the "Reserve Fund"). Landlord shall deposit an amount equal to the Initial
------------
Reserve Fund Payment into the Reserve Fund on the Commencement Date. The
Initial Reserve Fund Payment shall be equal to (x) the remaining balance in any
FF&E reserve fund existing at the Commencement Date plus (y) any sums held by a
----
prior Hotel Mortgagee for any Capital Repairs at the Leased Property, as such
amount is set forth on Exhibit A. Thereafter, Landlord, after receipt of the
---------
Rent from Tenant, shall deposit in the Reserve Fund an amount equal to four (4%)
percent (the "Reserve Payment") of Gross Revenues for each Accounting Period.
---------------
Interest, if any, payable on account of the Reserve Fund, plus
----
the amount of any Salvage, shall be credited against the Reserve Payment due for
the next succeeding Accounting Period. Not more than two times per Accounting
Period, upon the written request by Tenant to Landlord stating the specific use
to be made and subject to the reasonable approval thereof by Landlord, such
funds shall be made available by Landlord for Capital Expenditures set forth in
the Annual Budget, Emergency Repairs, to fund the replacement or refurbishment
of FF&E, and to fund any deductible amounts under insurance policies providing
all-risk property insurance up to the maximum permitted deductible amounts set
forth in Section 9.4; provided, however, that Tenant shall not use any sums in
----------- -------- -------
the Reserve Fund to purchase property (other than "real property" within the
meaning of Treasury Regulations Section 1.856-3(d)) to the extent that doing so
would cause the Landlord to recognize income other than "rents from real
property" as defined in Section 856(d) of the Code. Tenant shall, upon the
request of Landlord, promptly deliver to Landlord plans and specifications and
such other materials and information
50
<PAGE>
as Landlord may reasonably request regarding any proposed Capital Expenditures
or Capital Repairs. Tenant's obligations shall be cumulative, but not
compounded, and any amounts that have accrued hereunder shall be payable in
future periods for such uses and in accordance with the procedure set forth
herein. All Capital Repairs shall be located on the Land and shall be owned by
Landlord subject to the provisions of this Agreement. Tenant may not make any
Capital Repair which will increase the gross square footage of the Leased
Improvements without the prior written consent of Landlord, which consent may be
withheld or granted in Landlord's sole and absolute discretion. The
implementation of all Capital Repairs shall be subject to the approval of
Landlord and Tenant. Such approval shall extend both to the plans and
specifications (including matters of design and decor) and to the contracting
and purchasing of all labor, services and materials. In the event that Landlord
and Tenant are unable to agree on any aspect of the implementation of Capital
Repairs to be made pursuant to the Annual Budget, such matter shall be referred
to arbitration as provided in Article 23. Upon the Expiration Date or earlier
----------
termination of this Agreement, any funds remaining in the Reserve shall remain
the property of Landlord.
ARTICLE 7
---------
LIENS
-----
7.1 Liens. Subject to Article 8, Tenant shall not, directly or indirectly,
----- ---------
create or allow to remain and shall promptly discharge, at its expense, any
lien, encumbrance, attachment, title retention agreement or claim upon the
Leased Property or Tenant's leasehold interest therein or any attachment, levy,
claim or encumbrance in respect of the Rent, other than (a) Permitted
Encumbrances, (b) restrictions, liens and other encumbrances which are consented
to in writing by Landlord, (c) liens for those taxes of Landlord which Tenant is
not required to pay hereunder, (d) subleases permitted by Article 16, (e) liens
---------
for Impositions or for sums resulting from noncompliance with Legal Requirements
so long as (i) the same are not yet due and payable, or (ii) are being contested
in accordance with Article 8, (f) liens of mechanics, laborers, materialmen,
---------
suppliers or vendors incurred in the ordinary course of business that are not
51
<PAGE>
yet due and payable or are for sums that are being contested in accordance with
Article 8, and (g) Landlord Liens.
- ---------
7.2 Landlord's Lien. In addition to any statutory landlord's lien and in
---------------
order to secure payment of the Rent and all other sums payable hereunder by
Tenant, and to secure payment of any loss, cost or damage which Landlord may
suffer by reason of Tenant's breach of this Agreement, Tenant hereby grants unto
Landlord a security interest in and an express contractual lien upon Tenant's
Personal Property, and all ledger sheets, files, records, documents and
instruments (including, without limitation, computer programs, tapes and related
electronic data processing) relating to the operation of the Leased Property
(the "Records") and all proceeds therefrom, subject to any Permitted
-------
Encumbrances; and such Tenant's Personal Property shall not be removed from the
Leased Property at any time when a Default or an Event of Default has occurred
and is continuing. Upon Landlord's request, Tenant shall execute and deliver to
Landlord financing statements in form sufficient to perfect the security
interest of Landlord in Tenant's Personal Property and the proceeds thereof in
accordance with the provisions of the applicable laws. Tenant hereby grants
Landlord an irrevocable limited power of attorney, coupled with an interest, to
execute all such financing statements in Tenant's name, place and stead. The
security interest herein granted is in addition to any statutory lien for the
Rent.
ARTICLE 8
---------
PERMITTED CONTESTS
------------------
8.1 Permitted Contests. Subject to and in accordance with the
------------------
requirements of any Hotel Mortgage, Tenant shall have the right to contest the
amount or validity of any Imposition, Legal Requirement, Insurance Requirement,
Environmental Obligation, lien, attachment, levy, encumbrance, charge or claim
(collectively, "Claims") as to the Leased Property, by appropriate legal
------
proceedings, conducted in good faith and with due diligence, provided that (a)
the foregoing shall in no way be construed as relieving, modifying or extending
Tenant's obligation to pay any Claims as finally determined, (b) such contest
shall not cause Landlord or Tenant to be in default under
52
<PAGE>
any mortgage, deed of trust, Ground Lease or Condominium Declaration,
encumbering the Leased Property or any interest therein or result in or
reasonably be expected to result in a lien attaching to the Leased Property, (c)
no part of the Leased Property nor any Rent therefrom shall be in any immediate
danger of sale, forfeiture, attachment or loss, and (d) Tenant shall indemnify
and hold harmless Landlord from and against any cost, claim, damage, penalty or
reasonable expense, including, without limitation, reasonable attorneys' fees,
incurred by Landlord in connection therewith) or as a result thereof. Landlord
agrees to join in any such proceedings if required legally to prosecute such
contest, provided that Landlord shall not thereby be subjected to any liability
therefor (including, without limitation, for the payment of any costs or
expenses in connection therewith) unless Tenant agrees by agreement in form and
substance reasonably satisfactory to Landlord, to assume and indemnify Landlord
with respect to the same. Tenant shall be entitled to any refund of any Claims
and such charges and penalties or interest thereon which have been paid by
Tenant or paid by Landlord to the extent that Landlord has been fully reimbursed
by Tenant. If Tenant shall fail (x) to pay or cause to be paid any Claims when
finally determined, (y) to provide reasonable security therefor, or (z) to
prosecute or cause to be prosecuted any such contest diligently and in good
faith, Landlord may, upon reasonable notice to Tenant (which notice may be
oral), pay such charges, together with interest and penalties due with respect
thereto, and Tenant shall reimburse Landlord therefor, upon demand, as
Additional Charges.
ARTICLE 9
---------
INSURANCE AND INDEMNIFICATION
-----------------------------
9.1 General Insurance Requirements. (i) Landlord, or Tenant, with
------------------------------
Landlord's prior written consent, shall, at Tenant's sole cost and expense, at
all times during the Term keep the Leased Property and all property located
therein or thereon, insured against the risks and in the amounts as follows and
shall maintain the following insurance:
(a) Commercial general liability insurance, including bodily injury
and property damage (on an occurrence basis
53
<PAGE>
and on a 1993 1SO CGL form or on a form otherwise maintained by similarly
situated tenants, including, without limitation, broad form contractual
liability, liquor liability exposure, independent contractor's hazard and
completed operations coverage) in an amount not less than Fifty Million
Dollars ($50,000,000.00) per occurrence which limit can be obtained through
a combination of primary and umbrella coverage;
(b) Such additional insurance as may be reasonably required, from time
to time, by Landlord, any Hotel Mortgagee, or under the Ground Lease or
Condominium Declaration, and which is customarily carried by comparable
lodging properties in the area;
(c) Innkeeper's legal liability insurance covering property of guests
while on the Leased Property for which Landlord is legally responsible with
a limit of not less than $1,000 in any one occurrence or $25,000 annual
aggregate; and
(d) Safe deposit box legal liability insurance covering property of
guests while in a safe deposit box on the Leased Property for which
Landlord is legally responsible with a limit of not less than $25,000 in
any one occurrence.
(ii) Landlord shall, at Landlord's sole cost and expense, at all times
during the Term keep the Leased Property and all property located therein or
thereon, insured against the risks and in the amounts as follows and shall
maintain the following insurance:
(a) "All-risk" property insurance, including insurance against loss or
damage by fire, vandalism and malicious mischief, explosion of
steamboilers, earthquake and hurricane damage, pressure vessels or other
similar apparatus, now or hereafter installed in the Hotel located at the
Leased Property, with equivalent coverage as that provided by the usual
extended coverage endorsements, in an amount equal to one hundred (100%)
percent of the then full Replacement Cost thereof;
54
<PAGE>
(b) Business interruption and blanket earnings plus extra expense
under a rental value insurance policy or endorsement covering risk of loss
by reason of any hazard covered under the insurance required under this
Section 9.1 in such amounts as may be customary for comparable properties
in the area and in an amount sufficient to prevent Landlord or Tenant from
becoming a co-insurer but in any event for not less than twelve (12) months
of Gross Revenues; and
(c) Flood (if the Leased Property is located in a federally designated
flood zone) and such other hazards and in such amounts as may be customary
for comparable properties in the area.
(iii) Tenant shall, at Tenant's sole cost and expense, at all times
during the Term keep (a) comprehensive form vehicle liability insurance for
owned, non-owned, and hired vehicles, in the amount of $10,000,000.00, and (b)
worker's compensation insurance or other similar insurance which may be required
by Government Agencies or Legal Requirements.
9.2 Replacement Cost. "Replacement Cost" as used herein, shall mean the
---------------- ----------------
actual replacement cost of the property requiring replacement from time to time,
including an increased cost of construction endorsement, less exclusions
provided in the standard form of fire insurance policy.
9.3 Waiver of Subrogation. Landlord and Tenant agree that (insofar as and
---------------------
to the extent that such agreement may be effective without invalidating or
making it impossible to secure insurance coverage from responsible insurance
companies doing business in the State) with respect to any property loss which
is covered by insurance then being carried by Landlord or Tenant, respectively,
the party carrying such insurance and suffering said loss releases the other of
and from any and all claims with respect to such loss; and they further agree
that their respective insurance companies shall have no right of subrogation
against the other on account thereof, even though extra premium may result
therefrom. In the event that any extra premium is payable by Tenant as a result
of this provision, Landlord shall not be liable for reimbursement to Tenant for
such extra premium.
55
<PAGE>
9.4 Form Satisfactory, Etc. All insurance policies and endorsements
-----------------------
required pursuant to this Article 9 shall be fully paid for, nonassessable and,
---------
except for umbrella and flood coverage, be issued by insurance carriers
authorized to do business in the State, having a rating of no less than A:XI in
Best's latest rating guide and otherwise satisfactory under any Hotel Mortgage,
Ground Lease, or Condominium Declaration. No policy described in Sections
--------
9.1(i)(a), (ii)(a)-(c) and (iii) shall include a deductible in excess of One
- --------------------------------
Thousand Dollars ($1,000) (provided, however, that insurance for earthquake and
hurricane damage may include such reasonable deductibles as are consistent with
normal industry practice and which are otherwise acceptable to Landlord) and,
with the exception of the insurance described in Section 9.1(i)(b), shall name
-----------------
Landlord and any Hotel Mortgagee as additional insureds, as their interests may
appear. All loss adjustments shall be payable as provided in Article 10.
----------
Tenant shall cause all insurance premiums to be paid and shall deliver policies
or certificates thereof to Landlord prior to their effective date (and, with
respect to any renewal policy, prior to the expiration of the existing policy).
All such policies shall provide Landlord (and any Hotel Mortgagee if required by
the same) thirty (30) days prior written notice of any material change or
cancellation of such policy. In the event Tenant shall fail to effect such
insurance as herein required, to pay the premiums therefor or to deliver such
policies or certificates to Landlord or any Hotel Mortgagee at the times
required, Landlord shall have the right, but not the obligation, subject to the
provisions of Section 12.5, to acquire such insurance and pay the premiums
------------
therefor, which amounts shall be payable to Landlord, upon demand, as Additional
Charges, together with interest accrued thereon at the Overdue Rate from the
date such payment is made until (but excluding) the date repaid.
9.5 Blanket Policy. Notwithstanding anything to the contrary contained in
--------------
this Article 9, Landlord's or Tenant's obligation to maintain the insurance
---------
herein required may be brought within the coverage of a so-called blanket policy
or policies of insurance carried and maintained by Landlord, Tenant or the
Manager, as applicable, provided that (a) the coverage thereby afforded will not
be reduced or diminished from that which would exist under a separate policy
meeting all other requirements of this Agreement, and (b) the requirements of
this Article 9 are otherwise satisfied.
---------
56
<PAGE>
9.6 No Separate Insurance. Tenant shall not take out separate insurance,
---------------------
concurrent in form or contributing in the event of loss with that required by
this Article 9, or increase the amount of any existing insurance by securing an
---------
additional policy or additional policies, unless all parties having an insurable
interest in the subject matter of such insurance, including Landlord and all
Hotel Mortgagees, are included therein as additional insureds and the loss is
payable under such insurance in the same manner as losses are payable under this
Agreement. In the event Tenant shall take out any such separate insurance or
increase any of the amounts of the then existing insurance, Tenant shall give
Landlord prompt Notice thereof.
9.7 Indemnification of Landlord. Notwithstanding the existence of any
---------------------------
insurance provided for herein and without regard to the policy limits of any
such insurance, Tenant, or Tenant's Parent or Affiliate pursuant to the
Guaranty, shall protect, indemnify and hold harmless Landlord, the REIT and
Advisors, for, from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and reasonable expenses (including, without
limitation, reasonable attorneys' fees), to the maximum extent permitted by law,
imposed upon or incurred by or asserted against Landlord, the REIT or Advisors,
by reason of: (a) any accident, injury to or death of persons or loss of or
damage to property occurring on or about the Leased Property or adjoining
sidewalks or rights of way; (b) any past, present or future use, misuse, non-
use, condition, management, maintenance or repair by Tenant or anyone claiming
under Tenant of the Leased Property or Tenant's Personal Property or any
litigation, proceeding or claim by governmental entities or other third parties
to which Landlord, the REIT or Advisors, is made a party or participant relating
to the Leased Property, or Tenant's Personal Property or such use, misuse, non-
use, condition, management, maintenance, or repair thereof including failure to
perform obligations (other than Condemnation proceedings) to which Landlord, the
REIT or Advisors, is made a party; (c) any Impositions that are the obligations
of Tenant to pay pursuant to the applicable provisions of this Agreement; (d)
the imposition of any "dram act" or similar law relating to liability resulting
from the service of wine, beer, liquor or other alcoholic beverages; and (e) any
failure on the part of Tenant or anyone claiming under Tenant to perform or
comply with any of the terms of this Agreement or the Participating Leases
unless any such
57
<PAGE>
liability, obligation, claim, damage, penalty, cause of action, cost or
reasonable attorneys' fees were incurred as a result of Landlord's, the REIT's
or Advisors', gross negligence or willful misconduct. Tenant, at its expense,
shall contest, resist and defend any such claim, action or proceeding asserted
or instituted against Landlord, the REIT or Advisors, with counsel reasonably
acceptable to Landlord, the REIT or Advisors, or may compromise or otherwise
dispose of the same, with Landlord's, the REIT's or Advisors', prior written
consent (which consent shall not be unreasonably withheld, delayed or
conditioned). The obligations of Tenant under this Section 9.7 are in addition
-----------
to the obligations set forth in Section 4.3 and shall survive the termination of
-----------
this Agreement.
9.8 Increase in Limits. If Landlord at any time reasonably deems the
------------------
limits of the personal injury or property damage under the commercial public
liability insurance then carried by Tenant to be insufficient, Landlord and
Tenant shall endeavor in good faith to agree on the proper and reasonable limits
for such insurance to be carried and such insurance shall thereafter be carried
with the limits thus agreed on until further change pursuant to the provisions
of this Section 9.8. If the parties fail to agree on such limits, the matter
-----------
shall be referred to arbitration as provided for in Article 23.
----------
ARTICLE 10
----------
CASUALTY
--------
10.1 Insurance Proceeds. Except as provided in the last clause of this
------------------
sentence, all proceeds payable by reason of any loss or damage to the Leased
Property, or any portion thereof, and insured under any policy of insurance
required by Article 9 shall be paid directly to Landlord. If Tenant is required
---------
to reconstruct or repair the Leased Property as provided herein, such proceeds
as are made available by any Hotel Mortgagee shall be paid out by Landlord from
time to time for the costs of reconstruction or repair of the Leased Property
necessitated by such damage or destruction, subject to and in accordance with
the provisions of Section 10.2.2. In the event that the provisions of Section
-------------- -------
10.2.1 are applicable, the insurance proceeds shall be retained by the party
- ------
entitled
58
<PAGE>
thereto pursuant to Section 10.2.1. All salvage resulting from
--------------
any risk covered by insurance shall belong to Landlord, provided any rights to
the same have been waived by the insurer.
10.2 Damage or Destruction.
---------------------
10.2.1 Damage or Destruction of Leased Property. In the event (a)
----------------------------------------
the Leased Property is damaged by fire, explosion or other casualty insured
under the fire and extended coverage insurance policy required hereunder (an
"Insured Casualty") to the extent of twenty-five percent (25%) or more of the
- -----------------
insurable value thereof immediately preceding the casualty, (b) the Leased
Property is damaged by a casualty or occurrence other than an Insured Casualty,
(c) such damage occurs at anytime within the last six (6) months of the Term,
(d) the Leased Property or any portion thereof is damaged by fire, explosion or
other casualty and the Leased Property cannot be repaired, rebuilt or restored
to the same condition under the terms of the Franchise Agreement, under any
Legal Requirements or other governmental order or under any other agreement to
which the Leased Property is subject or (e) a casualty occurs to a portion of
the Hotel which renders the Hotel Unsuitable for Its Permitted Use (a
"Prohibited Casualty"), then in such event Landlord may terminate this Agreement
- --------------------
by giving Tenant written notice of termination within thirty (30) days after the
happening of the event causing the damage. In the event the damage is not
extensive enough to give rise to Landlord's option to terminate this Agreement,
a Prohibited Casualty has not occurred, or Landlord does not elect to terminate
this Agreement, Landlord, at Landlord's sole cost and expense shall promptly
repair and replace the Leased Property to the condition existing immediately
preceding such fire, explosion or other casualty. During any period of
reconstruction or repair of the Leased Property, (i) Landlord shall make any
business interruption insurance proceeds available to Tenant to pay necessary
operating expenses and Rent with respect to the Leased Property, (ii) Tenant
shall operate its business in the Leased Property to the extent practicable, and
(iii) Minimum Rent payable under this Agreement by Tenant shall be abated during
the period of such repair and restoration to the extent the Leased Property is
not tenantable.
10.2.2 Disbursement of Proceeds. In the event Tenant undertakes to
------------------------
restore the Leased Property after an Insured
59
<PAGE>
Casualty or, if this Agreement has not been terminated, a Prohibited Casualty,
Tenant shall (or shall cause the Manager to) commence promptly and continue
diligently to perform the repair and restoration of the Leased Property
(hereinafter called the "Work"), so as to restore the Leased Property in
----
compliance with all Legal Requirements and so that the
Leased Property shall be, to the extent practicable, substantially equivalent in
value and general utility to its general utility and value immediately prior to
such damage or destruction. Subject to the terms hereof, Landlord shall advance
the insurance proceeds to Tenant regularly during the repair and restoration
period so as to permit payment for the cost of any such restoration and repair.
Any such advances shall be made not more than monthly within ten (10) Business
Days after Tenant submits to Landlord a written requisition and substantiation
therefor containing such information and in such form as may be reasonably
required by Landlord. Landlord may, at its option, condition advancement of said
insurance proceeds and other amounts on (a) the absence of any Event of Default,
(b) its approval of plans and specifications of an architect satisfactory to
Landlord (which approval shall not be unreasonably withheld or delayed), (c)
general contractors' estimates, (d) architect's certificates, (e) unconditional
lien waivers of general contractors, if available, (f) evidence of approval by
all governmental authorities and other regulatory bodies whose approval is
required and (g) such other certificates as Landlord may, from time to time,
reasonably require. Landlord's obligation to disburse insurance proceeds under
this Article 10 shall be subject to the release of such proceeds by any Hotel
----------
Mortgagee to Landlord. Notwithstanding anything contained in this Agreement, in
the event that any Hotel Mortgagee does not release insurance proceeds to
Landlord, unless Landlord determines, in its sole and absolute discretion, to
make monies in the amount of such proceeds available to Tenant for repair or
restoration of the Leased Property, Tenant shall have no obligation to repair or
restore the Leased Property. If a Hotel Mortgagee or Landlord releases only a
portion of insurance proceeds to Tenant and Landlord does not, in its sole and
absolute discretion, make any shortfall in the amount of insurance proceeds
released by a Hotel Mortgagee available to Tenant for repair or restoration of
the Leased Property, Tenant shall only be obligated to repair and restore the
Leased Property to the extent of moneys released by Hotel Mortgagee or Landlord,
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<PAGE>
plus any sums made available by Landlord for repairs and restoration.
10.3 Damage Near End of Term. Notwithstanding any provisions of Section
----------------------- -------
10.1 or 10.2 to the contrary, if damage to or destruction of the Leased Property
- ------------
occurs during the last twelve (12) months of the Term and if such damage or
destruction cannot reasonably be expected to be fully repaired and restored
prior to the date that is six (6) months prior to the end of the Term, the
provisions of Section 10.2.1 shall apply as if the Leased Property had been
--------------
totally or partially destroyed and the Hotel rendered Unsuitable for its
Permitted Use.
10.4 Tenant's Property. All insurance proceeds payable by reason of any
-----------------
loss of or damage to any of Tenant's Personal Property shall be paid to Tenant
and, to the extent necessary to repair or replace Tenant's Personal Property in
accordance with Section 10.5, Tenant shall hold such proceeds to pay the cost of
------------
repairing or replacing damaged Tenant's Personal Property.
10.5 Restoration of Tenant's Property. If Tenant is required to
--------------------------------
restore the Leased Property as hereinabove provided, Tenant shall either (a)
restore all alterations and improvements made by Tenant and Tenant's Personal
Property, if any, or (b) replace such alterations and improvements and Tenant's
Personal Property, if any, with improvements or items of the same or better
quality and utility to the operation of the Leased Property.
10.6 Waiver. Tenant hereby waives any statutory rights of termination
------
which may arise by reason of any damage or destruction of the Leased Property.
10.7 Casualty -- Conflicting Terms. Notwithstanding any provision of this
-----------------------------
Article 10 to the contrary, if any Hotel Mortgage, Ground Lease, or Condominium
- ----------
Declaration contains provisions which apply in the event of a casualty and which
are in conflict with the terms of this Article 10, then such Hotel Mortgage,
----------
Ground Lease, or Condominium Declaration shall control to the extent of such
conflict.
ARTICLE 11
----------
61
<PAGE>
CONDEMNATION
------------
11.1 Total Condemnation, Etc. In the event (a) the whole of the Leased
------------------------
Property shall be taken or condemned for a public or quasi-public use or purpose
by a Condemnor or sold by Landlord in lieu thereof, (b) such a portion of the
Leased Property shall be taken, condemned or sold in lieu thereof so that the
balance cannot be used for the same purpose and with substantially the same
utility to Tenant as immediately prior to such taking, or (c) the Leased
Property or any portion thereof shall be taken or condemned for a pubic or
quasi-public use or purpose by a Condemnor or sold by Landlord in lieu thereof
and Landlord is unable to repair, rebuild or restore the same under the terms of
any agreement to which it is a party, under the Franchise Agreement or under any
Legal Requirements or other governmental order to which Landlord or the Leased
Property is subject (a "Prohibited Taking"), this Agreement shall terminate upon
-----------------
delivery of possession to the Condemnor or its assignee, and any Award shall be
paid to and be the sole property of Landlord whether the Award shall be made as
compensation for diminution of the value of the leasehold estate or the fee of
the Land or otherwise, and Tenant hereby assigns to Landlord all of Tenant's
right, title and interest in and to any and all of the Award. Tenant shall
have no claim against Landlord by reason of such taking or termination and shall
not have any claim or right to any portion of the Award to be paid to Landlord.
Tenant shall continue to pay Rent and other charges hereunder until the
Agreement is terminated.
11.2 Partial Taking. In the event (a) only a part of the Leased
--------------
Property is taken or condemned but the Leased Property or the part remaining can
still be used for the same purpose and with substantially the same utility to
Tenant as immediately prior to such taking, or (b) a Prohibited Taking has not
occurred, this Agreement shall not terminate and Landlord, at Landlord's sole
cost and expense, shall repair and restore the remaining Leased Improvements
provided the cost and expense of such repair and restoration does not exceed the
amount of the Award. If the cost of such repair and restoration exceeds the
amount of the Award, Landlord may terminate this Agreement by giving written
notice of termination to Tenant within thirty (30) days of the delivery of
possession to the Condemnor. If Landlord is obligated to repair and restore the
remaining Leased
62
<PAGE>
Improvements as herein provided, there shall be no abatement or reduction in any
Rent or other charges payable by Tenant under this Agreement because of such
taking or condemnation; provided, however, Minimum Rent shall be abated (i)
during the period of such restoration, to the extent the Leased Property is not
tenantable by Tenant, or (ii) following the completion of the restoration, to
the extent the Leased Improvements are not tenantable.
11.3 Tenant's Award. Tenant shall have no right to claim and recover from
--------------
the Condemnor or from Landlord such compensation as may otherwise be separately
awarded to Tenant for any damage to Tenant's business by reason of such
condemnation and for any cost or loss incurred by Tenant in removing or
relocating Tenant's merchandise, fixtures and furnishings.
11.4 Condemnation -- Conflicting Terms. Notwithstanding any provision of
---------------------------------
this Article 11 to the contrary, if any Hotel Mortgage, Ground Lease, or
----------
Condominium Declaration contains provisions which apply in the event of a
condemnation and which are in conflict with the Terms of this Article 11, then
----------
such Hotel Mortgage, Ground Lease, or Condominium Declaration shall control to
the extent of such conflict.
ARTICLE 12
----------
DEFAULTS AND REMEDIES
---------------------
12.1 Events of Default. The occurrence of any one or more of the following
-----------------
events shall constitute an "Event of Default" hereunder:
----------------
(a) should Tenant fail to make any payment of the Rent or any other
sum when due and such failure shall continue for a period of ten (10) days;
or
(b) should Tenant or the Manager fail to reimburse Landlord for the
costs of insurance maintained under Article 9, or should Tenant or the
---------
Manager fail to maintain any insurance coverages required under Article 9,
---------
and such failure shall continue for ten (10) days after Notice
63
<PAGE>
thereof (except that no Notice shall be required if any such insurance
coverages shall have lapsed); or
(c) should Tenant default in the due observance or performance of any
of the terms, covenants or agreements contained herein to be performed or
observed by it (other than as specified in clauses (a) and (b) above and
(d) through (s) below) such default shall continue for a period of thirty
(30) days after Notice thereof from Landlord to Tenant; provided, however,
-------- -------
that if such default is susceptible of cure but such cure cannot be
accomplished with due diligence within such period of time and if, in
addition, Tenant commences to cure or cause to be cured such default within
fifteen (15) days after Notice thereof from Landlord and thereafter
prosecutes the curing of such default with all due diligence, such period
of time shall be extended to such period of time as may be reasonably and
commercially necessary to cure such default with all due diligence; or
(d) should Tenant fail to maintain the Minimum Net Worth for a period
of ninety (90) days; or
(e) should an event of default occur and be continuing beyond the
expiration of any applicable cure period under any of the Incidental
Documents; or
(f) should there occur a final unappealable determination by a
Government Agency of the revocation or limitation of any material license,
permit, certification or approval required for the lawful operation of the
Hotel in accordance with its Permitted Use or the loss or material
limitation of any material license, permit, certification or approval under
any other circumstances under which Tenant or the Manager is required to
cease its operation of the Hotel in accordance with its Permitted Use at
the time of such loss or limitation if such revocation or limitation was a
result of any act or failure to act by Manager or Tenant; or
(g) should Tenant or Manager generally not be paying its debts as they
become due or should Tenant make a general assignment for the benefit of
creditors; or
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<PAGE>
(h) should Tenant or Manager file a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or consent to the appointment of a custodian, receiver,
trustee or other similar office with respect to it or any substantial part
of its assets, or take corporate action for the purpose of any of the
foregoing; or if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Tenant
or Manager, a custodian, receiver, trustee or other similar officer with
respect to Tenant or Manager or any substantial part of its assets, or if
an order for relief shall be entered in any case or proceeding for
liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of Tenant or Manager, or if any
petition for any such relief shall be filed against Tenant or Manager and
such petition shall not be dismissed within one hundred twenty (120) days;
or
(i) should Tenant or Manager cause or institute any proceeding for its
dissolution or termination; or
(j) should Tenant or Manager be, or cause Landlord to be, in default
under the Hotel Mortgage, the Ground Lease, the Condominium Declaration, or
any mortgage or deed of trust or other similar security document which is
secured by Tenant's leasehold interest hereunder or should the mortgagee or
beneficiary, as applicable, under any such mortgage or deed of trust or
other similar security document accelerate the indebtedness secured thereby
or commence a foreclosure action in connection with said mortgage; or
(k) should the estate or interest of Tenant in the Leased Property or
any part thereof be levied upon or attached in any proceeding and the same
shall not be vacated or discharged within the later of (i) one hundred
twenty (120) days after commencement thereof, unless the amount in dispute
is less than $50,000.00, in which case Tenant shall give notice to Landlord
of the dispute but Tenant may defend in any suitable way, and (ii) thirty
(30) days after receipt
65
<PAGE>
by Tenant of Notice thereof from Landlord (unless Tenant shall be
contesting such lien or attachment in good faith in accordance with Article
-------
8); or
--
(l) should any default by Tenant as "Owner" under the Management
Agreement occur and be continuing beyond the expiration of any applicable
cure period under the Management Agreement; or
(m) should a Change of Control of Tenant or Manager occur other than
as provided in Sections 22.22 or 5.4, respectively; or
-------------- ---
(n) should Tenant or Manager be, or cause Landlord to be, in default
beyond applicable grace periods, if any, under any Franchise Agreement
relating to the Leased Property including any Termination of the Franchise
Agreement without Landlord's prior written consent; or
(o) should Tenant or Manager voluntarily cease operations of the
Leased Property for more than three (3) days other than by reason of
casualty, Condemnation or Force Majeure; or
(p) should the estate or interest of Tenant in this Agreement
voluntarily or involuntarily, be transferred, assigned, conveyed, levied
upon or attached; or
(q) should Tenant fail to observe or perform any other term of any
Participating Leases and the continuation of such failure for a period of
thirty (30) days after receipt by Tenant of notice from the Landlord
thereof, unless Tenant is diligently proceeding to cure, in which case the
cure period will be extended to one hundred eighty (180) days; provided,
however, if such failure cannot be cured within the one hundred eighty
(180) day period and the Tenant continues to act, with diligence, to
correct such failure within said one hundred eighty (180) days, then Tenant
will be afforded up to an additional ninety (90) days to cure such failure;
or
(r) should an Event of Default occur under a Participating Lease; or
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<PAGE>
(s) should Tenant or Manager be, or cause Landlord to be, in default
beyond applicable grace periods, if any, under any ground lease or
condominium association declarations affecting the Leased Property; or
(t) Should Tenant fail to maintain the Security Deposit; or
(u) Should Tenant fail to comply with the Minimum Operating Standards
for a period of thirty (30) days; or
(v) Should Tenant or Manager no longer be majority owned or controlled
by [______]; or
(w) Should there be a Change in Operation without Landlord's prior
written consent; or
(x) Should Tenant incur any Indebtedness except as expressly provided
in Section 21.4;
------------
then, and in any such event, Landlord, in addition to all other remedies
available to it, may terminate this Agreement by giving Notice thereof to Tenant
and upon the expiration of the time, if any, fixed in such Notice, this
Agreement shall terminate and all rights of Tenant under this Agreement shall
cease. Landlord shall have and may exercise all rights and remedies available
at law and in equity to Landlord as a result of Tenant's breach of this
Agreement.
12.2 Remedies. None of (a) the termination of this Agreement pursuant to
--------
Section 12.1, (b) the repossession of the Leased Property or any portion
- ------------
thereof, (c) the failure of Landlord to re-let the Leased Property or any
portion thereof, nor (d) the re-letting of all or any portion of the Leased
Property, shall relieve Tenant of its liability and obligations hereunder, all
of which shall survive any such termination, repossession or re-letting. In the
event of any such termination, Tenant shall forthwith pay to Landlord all Rent
due and payable with respect to the Leased Property through and including the
date of such termination. Thereafter, Tenant, until the end of what would have
been the Term of this Agreement in the absence of such termination, and whether
or not the Leased Property or any portion thereof shall have been re-let, shall
be
67
<PAGE>
liable to Landlord for, and shall pay to Landlord, as current damages, the
Rent and other charges which would be payable hereunder for the remainder of the
Term had such termination not occurred, less the net proceeds, if any, of any
re-letting of the Leased Property, after deducting all reasonable expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, legal expenses, attorneys' fees, advertising,
expenses of employees, alteration costs and expenses of preparation for such re-
letting. Tenant shall pay such current damages to Landlord monthly on the days
on which the Minimum Rent would have been payable hereunder if this Agreement
had not been so terminated. At any time after such termination, as liquidated
final damages beyond the date of such termination, at Landlord's election,
Tenant shall pay to Landlord an amount equal to the present value (discounted at
the Interest Rate) of the excess, if any, of the Rent and other charges which
would be payable hereunder from the date of such termination (assuming that, for
the purposes of this Section 12.2, annual payments by Tenant on account of
------------
Additional Charges and Participating Rent would be the same as payments required
for the immediately preceding twelve (12) calendar months, or if less than
twelve (12) calendar months have expired since the Commencement Date, the
payments required for such lesser period adjusted to an annual amount) for what
would be the then unexpired term of this Agreement if the same remained in
effect, over the fair market rental for the same period, less any current
damages already paid by Tenant. Nothing contained in this Agreement shall,
however, limit or prejudice the right of Landlord to prove and obtain in
proceedings for bankruptcy or insolvency an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater than, equal to, or less than the amount of the loss or damages referred
to above. In case of any Event of Default, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (a) re-let the
Leased Property or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option, be equal to, less
than or exceed the period which would otherwise have constituted the balance of
the Term and may grant concessions or free rent to the extent that Landlord
considers advisable and necessary to re-let the same, and (b) may make such
reasonable alterations, repairs and
68
<PAGE>
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable in any way
whatsoever for any failure to re-let all or any portion of the Leased Property,
or, in the event that the Leased Property is re-let, for failure to collect the
rent under such re-letting. To the maximum extent permitted by law, Tenant
hereby expressly waives any and all rights of redemption granted under any
present or future laws in the event of Tenant being evicted or dispossessed, or
in the event of Landlord obtaining possession of the Leased Property, by reason
of the occurrence and continuation of an Event of Default hereunder.
Additionally, upon the occurrence of an Event of Default, Landlord may, in
addition to any other remedies provided herein or available at law or in equity,
enter upon the Leased Property or any portion thereof and take possession of any
and all of Tenant's Personal Property, if any, and the Records, without
liability for trespass or conversion (Tenant hereby waiving any right to notice
or hearing prior to such taking of possession by Landlord) and sell the same at
public or private sale, after giving Tenant reasonable Notice of the time and
place of any public or private sale, at which sale Landlord or its assigns may
purchase all or any portion of Tenant's Personal Property, if any, unless
otherwise prohibited by law. Unless otherwise provided by law and without
intending to exclude any other manner of giving Tenant reasonable notice, the
requirement of reasonable Notice shall be met if such Notice is given at least
ten (10) days before the date of sale. The proceeds from any such disposition,
less all expenses incurred in connection with the taking of possession, holding
and selling of such property (including, without limitation, reasonable
attorneys' fees) shall be applied as a credit against the indebtedness which is
secured by the security interest granted in Section 7.2. Any surplus shall be
-----------
paid to Tenant or as otherwise required by law and Tenant shall pay any
deficiency to Landlord, as Additional Charges, upon demand.
12.3 Tenant's Waiver. IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION
--------------- -------
12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A
- ------------
TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET
FORTH IN THIS
69
<PAGE>
ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING
- ----------
PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.
12.4 Application of Funds. Any payments received by Landlord under any of
--------------------
the provisions of this Agreement during the existence or continuance of any
Event of Default (and any payment made to Landlord rather than Tenant due to the
existence of any Event of Default) shall be applied to Tenant's current and past
due obligations under this Agreement in such order as Landlord may determine or
as may be prescribed by the laws of the State.
12.5 Landlord's Right to Cure Tenant's Default. If an Event of Default
-----------------------------------------
shall have occurred and be continuing, Landlord, after Notice to Tenant (which
Notice shall not be required if Landlord shall reasonably determine immediate
action is necessary to protect person or property), without waiving or releasing
any obligation of Tenant and without waiving or releasing any Event of Default,
may (but shall not be obligated to), at any time thereafter, make such payment
or perform such act for the account and at the expense of Tenant, and may, to
the maximum extent permitted by law, enter upon the Leased Property or any
portion thereof for such purpose and take all such action thereon as, in
Landlord's sole and absolute discretion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Tenant. All reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Landlord in connection therewith, together with interest thereon (to
the extent permitted by law) at the Overdue Rate from the date such sums are
paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand.
ARTICLE 13
----------
HOLDING OVER
------------
13.1 Holding Over. Any holding over by Tenant after the expiration or
------------
sooner termination of this Agreement shall be treated as a daily tenancy at
sufferance at a rate equal to one and one-half (1.5) times the Rent and other
charges herein provided (prorated on a daily basis). Tenant shall also pay to
Landlord all damages (direct or indirect) sustained by reason of any such
holding over. Otherwise, such holding over shall be on
70
<PAGE>
the terms and conditions set forth in this Agreement, to the extent applicable.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over of Tenant after the expiration or earlier
termination of this Agreement.
ARTICLE 14
----------
LIMITATION ON LIABILITY
-----------------------
14.1 Limitation of Liability. Notwithstanding any provision of this
-----------------------
Agreement to the contrary, there shall be absolutely no personal liability on
the part of Landlord or the REIT or their Affiliates, shareholders, directors,
trustees, partners, advisors, agents, employees, or their respective successors
or assigns or any mortgagee in possession, with respect to any of the terms,
covenants, or conditions of this Agreement with respect to any act, omission or
negligence of Landlord. Tenant shall look solely to Landlord's estate and
property in the Leased Property and the proceeds thereof for the satisfaction of
Tenant's remedies whether for the collection of any judgment or other judicial
process requiring the payment of money by Landlord in the event of any default
by Landlord hereunder or otherwise, and no other property or assets of Landlord
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Agreement, the
relationship of Landlord and Tenant or Tenant's use or occupancy of the Leased
Property.
ARTICLE 15
----------
SECURITY
--------
15.1 Security Deposit.
----------------
(a) To secure the debt, liability and obligations of Tenant to
Landlord under this Agreement and the Participating Leases and any
amendments, modifications, extensions, renewals or replacements of this
Agreement and the Participating Leases (all of which liabilities and
obligations of Tenant being herein collectively referred to
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as the "Security Obligations"), Tenant shall deposit with Landlord, and
---------------------
shall pledge, hypothecate, assign, transfer and grant to Landlord a
continuing lien and perfected security interest in and to, those items in
the amounts and as further described on Exhibit F attached hereto and
---------
hereby made a part hereof, and all renewals, extensions and substitutions
thereof, together with all rights in connection with the foregoing,
including, but not limited to, all distributions, including cash, and other
property, real or personal, tangible or intangible, and all proceeds
distributed on account of the foregoing, and substitutions for and proceeds
or products of any of the foregoing (collectively, the "Security Deposit").
----------------
(b) Tenant agrees that Landlord may at any time, after the occurrence
of an Event of Default and without notice and demand to Tenant, (i) notify
the obligor on or issuer of any Security Deposit to make payment to
Landlord of any amounts due or distributed thereon, (ii) in Tenant's name
or Landlord's name enforce collection of any Security Deposit by suit or
otherwise, or surrender, release or exchange all or any part of it, or
compromise, extend or renew for any period any obligation evidenced by the
Security Deposit, (iii) receive all proceeds of the Security Deposit, and
(iv) hold any increase or profits received from the Security Deposit as
additional security for the Security Obligations, except that any money
received from the Security Deposit shall, at Landlord's option, be applied
in reduction of the Security Obligations, in such order of application as
Landlord may determine; provided, however, nothing contained herein shall
preclude Landlord from exercising all rights and remedies available at law
and in equity to Landlord as a result of Tenant's breach of this Agreement.
15.2 Representations, Warranties and Covenants. Tenant represents and
-----------------------------------------
warrants to and covenants and agrees with Landlord that: (a) Tenant will duly
endorse each and every instrument constituting the Security Deposit by signing
on said instrument or by signing a separate document of assignment or transfer,
if required by Landlord; (b) Tenant shall not sell or transfer or contract to
sell or transfer the Security Deposit or any portion thereof; (c) Tenant shall
pay, when due, all taxes and other governmental charges levied or assessed upon
or against any
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Security Deposit; (d) at any time, upon request by Landlord, Tenant shall
deliver to Landlord all notices, financial statements, reports or other
communications received by Tenant as an owner or holder of the Security Deposit;
(e) Tenant shall upon receipt deliver to Landlord in pledge as Security Deposit
all proceeds distributed on account of the Security Deposit such as cash flow
and sale proceeds; (f) Tenant is the owner of the Security Deposit free and
clear of all liens, encumbrances, security interests and restrictions, except
for any security interests granted to Landlord pursuant to the terms of this
Agreement; and (g) the pledge of the Security Deposit herein by Tenant has been
duly authorized by all requisite actions of Tenant and is not in breach of any
agreement of Tenant. Tenant hereby agrees to execute any and all instruments
required by Landlord to establish, maintain and continue Landlord's perfected
security interest in the Security Deposit.
15.3 Possession and Maintenance of Security Deposit. The Security Deposit
----------------------------------------------
shall be at all times in the possession of Landlord. Landlord shall take all
necessary action as it deems appropriate to preserve, protect, replenish and
maintain the Security Deposit and the rights represented and evidenced by the
Security Deposit, and the costs and expenses thereof shall be paid by Tenant;
provided, however, Landlord shall not have any liability for any loss to the
Security Deposit not attributable to Landlord's gross negligence, or intentional
misconduct, and no such loss shall relieve Tenant of its obligations under this
Agreement.
ARTICLE 16
----------
SUBLETTING AND ASSIGNMENT
-------------------------
16.1 Subletting and Assignment. Tenant shall not, without Landlord's prior
-------------------------
written consent (which consent may be given or withheld in Landlord's sole and
absolute discretion), assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer this Agreement or sublease (which term shall be deemed to
include the granting of concessions, licenses and the like), all or any part of
the Leased Property or suffer or permit this Agreement or the leasehold estate
created hereby or any other rights arising under this Agreement to be assigned,
transferred,
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mortgaged, pledged, hypothecated or encumbered, in whole or in
part, whether voluntarily, involuntarily or by operation of law, or permit the
use or operation of the Leased Property by any Person other than Tenant and the
Manager, on behalf of Tenant pursuant to the express terms of the Management
Agreement, or the Leased Property to be offered or advertised for assignment or
subletting. For purposes of this Section 16.1, an assignment of this Agreement
------------
shall be deemed to include any transaction pursuant to which Tenant is merged or
consolidated with another Person or pursuant to which all or substantially all
of Tenant's assets are transferred to any other Entity, as if such Change in
Control or transaction were an assignment of this Agreement. No subletting or
assignment shall in any way impair the continuing primary liability of Tenant
hereunder (unless Landlord and Tenant expressly otherwise agree that Tenant
shall be released from all obligations hereunder), and no consent to any
subletting or assignment in a particular instance shall be deemed to be a waiver
of the prohibition set forth in this Section 16.1. No assignment, subletting or
------------
occupancy shall affect any Permitted Use. Any subletting, assignment or other
transfer of Tenant's interest under this Agreement in contravention of this
Section 16.1 shall be voidable at Landlord's option.
- ------------
16.2 Required Sublease Provisions. Any sublease of all or any portion of
----------------------------
the Leased Property entered into on or after the date hereof shall be consistent
with any applicable terms and conditions of the Management Agreement and shall
provide: (a) that it is subject and subordinate to this Agreement and to the
matters to which this Agreement is or shall be subject or subordinate; (b) that
in the event of termination of this Agreement or reentry or dispossession of
Tenant by Landlord under this Agreement, Landlord may, at its option, terminate
such sublease or take over all of the right, title and interest of Tenant, as
sublessor under such sublease, and such subtenant shall, at Landlord's option,
attorn to Landlord pursuant to the then executory provisions of such sublease,
except that neither Landlord nor any Hotel Mortgagee, as holder of a mortgage or
as Landlord under this Agreement, if such mortgagee succeeds to that position,
shall (i) be liable for any act or omission of Tenant under such sublease, (ii)
be subject to any credit, counterclaim, offset or defense which theretofore
accrued to such subtenant against Tenant, (iii) be bound by any previous
modification of such sublease not consented to in writing by Landlord or by any
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previous prepayment of more than one (1) month's Rent, (iv) be bound by any
covenant of Tenant to undertake or complete any construction of the Leased
Property or any portion thereof, (v) be required to account for any security
deposit of the subtenant other than any security deposit actually delivered to
Landlord by Tenant, (vi) be bound by any obligation to make any payment to such
subtenant or grant any credits, except for services, repairs, maintenance and
restoration provided for under the sublease that are performed after the date of
such attornment, (vii) be responsible for any monies owing by Tenant to the
credit of such subtenant, or (viii) be required to remove any Person occupying
any portion of the Leased Property; and (c) in the event that such subtenant
receives a written Notice from Landlord or any Hotel Mortgagee stating that an
Event of Default has occurred and is continuing, such subtenant shall thereafter
be obligated to pay all rentals accruing under such sublease directly to the
party giving such Notice or as such party may direct for so long as such Event
of Default remains uncured. All rentals received from such subtenant by
Landlord or the Hotel Mortgagee, as the case may be, shall be credited against
the amounts owing by Tenant under this Agreement and such sublease shall provide
that the subtenant thereunder shall, at the request of Landlord, execute a
suitable instrument in confirmation of such agreement to attorn. An original
counterpart of each such sublease and assignment and assumption, duly executed
by Tenant and such subtenant or assignee, as the case may be, in form and
substance reasonably satisfactory to Landlord, shall be delivered promptly to
Landlord and (a) in the case of an assignment, the assignee shall assume in
writing and agree to keep and perform all of the terms of this Agreement on the
part of Tenant to be kept and performed and shall be, and become, jointly and
severally liable with Tenant for the performance thereof and (b) in case of
either an assignment or subletting, Tenant shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Tenant hereunder. The provisions of this Section 16.2 shall not be
------------
deemed a waiver of the provisions set forth in Section 16.1.
------------
16.3 Sublease Limitation. For so long as the REIT shall seek to
-------------------
qualify as a real estate investment trust, anything contained in this Agreement
to the contrary notwithstanding,
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<PAGE>
Tenant shall not sublet the leased Property on any basis such that the rental to
be paid by any sublessee thereunder would be based, in whole or in part, on
either (a) the net income or profits derived by the business activities of such
sublessee, or (b) any other formula such that any portion of such sublease
rental, if it were paid as rent directly to the REIT, would fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the Code, or
any similar or successor provision thereto nor shall Tenant sublease the Leased
Property to, or enter into any similar arrangement with, any Person in which the
REIT owns, directly or indirectly, a 10% or more interest, within the meaning of
Section 856(d) of the Code or any similar or successor provisions thereto.
ARTICLE 17
----------
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
----------------------------------------------
17.1 Estoppel Certificates. At any time and from time to time, but in no
---------------------
event more than four (4) times per Fiscal Year, upon not less than ten (10)
Business Days prior Notice by either party, the party receiving such Notice
shall furnish to the other an Officer's Certificate certifying that this
Agreement is unmodified and in full force and effect (or that this Agreement is
in full force and effect as modified and setting forth the modifications), the
date to which the Rent has been paid, that no Default or an Event of Default has
occurred and is continuing or, if a Default or an Event of Default shall exist,
specifying in reasonable detail the nature thereof, and the steps being taken to
remedy the same, and such additional information as the requesting party may
reasonably request. Any such certificate furnished pursuant to this Section
-------
17.1 may be relied upon by the requesting party, its lenders and any prospective
- ----
purchaser or mortgagee of the Leased Property or the leasehold estate created
hereby.
17.2 Financial Statements. Tenant shall keep true records and books of
--------------------
account of Tenant in which full, true and correct entries will be made of
dealings and transactions in relation to the business and affairs of Tenant in
accordance with GAAP, where applicable. All records and books of account of
Tenant shall be maintained by Tenant for a period of not less
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<PAGE>
than seven (7) years after the termination of the Term. Tenant shall apply
accounting principles in the preparation of the financial statements of Tenant
which, in the judgment of and the opinion of its independent public accountants,
are in accordance with GAAP and the Uniform System of Accounts, where
applicable, except for changes approved by such independent public
accountants. Tenant shall provide to Landlord either in a footnote to the
financial statements delivered under this Section 17.2 which relate to the
------------
period in which such change occurs, or in separate schedules to such financial
statements, information sufficient to show the effect of any such changes on
such financial statements. Tenant shall furnish the following statements to
Landlord:
(a) within twenty (20) days after each of the first three quarters of
any Fiscal Year, the most recent Financials, accompanied by a Financial
Officer's Certificate;
(b) within forty-five (45) days after the end of each Fiscal Year, the
most recent Financials for such year, certified by an independent certified
public accountant reasonably satisfactory to Landlord and accompanied by a
Financial Officer's Certificate;
(c) within twenty (20) days after the end of each Accounting Period,
an unaudited operating statement prepared for the Leased Property,
including occupancy percentages and average rate, accompanied by a
Financial Officer's Certificate and an Officer's Certificate prepared by
the Manager containing an explanation of the performance of the Leased
Property and containing (i) a schedule of profit and loss for such
Accounting Period, (ii) a Schedule of the Capital Expenditures for the year
to date together with a restatement of the Capital Expenditures for the
remainder of the Fiscal Year, (iii) a reforecast of the Budget for the
remainder of the Fiscal Year, including cash flow, and (iv) a balance
sheet, comparison of operations, variance report and anything else
reasonably requested by Landlord;
(d) promptly after the sending or filing thereof, copies of all
reports which Tenant or Manager sends to its security holders generally,
and copies of all periodic
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reports which Tenant or Manager files with the SEC or any stock exchange on
which its shares are listed or traded;
(e) promptly after the delivery thereof to Tenant, a copy of any
management letter or written report prepared by the certified public
accountants with respect to the financial condition, operations, business
or prospects of Tenant;
(f) at any time and from time to time upon not less than twenty (20)
days Notice from Landlord, any Financials or any other financial reporting
information required to be filed by Landlord with any securities and
exchange commission, the SEC or any successor agency, or any other
governmental authority, or required pursuant to any order issued by any
court, Government Agency or arbitrator in any litigation to which Landlord
is a party, for purposes of compliance therewith; and
(g) promptly, upon Notice from Landlord, such other information
concerning the business, financial condition and affairs of Tenant as
Landlord reasonably may request from time to time.
Landlord may at any time, and from time to time, provide any Hotel Mortgagee
with copies of any of the foregoing statements. In addition, Landlord shall
have the right, from time to time at Landlord's sole cost and expense, upon
reasonable Notice, during Tenant's customary business hours, to cause Tenant's
books and records with respect to the Leased Property to be audited by auditors
selected by Landlord at the place where such books and records are customarily
kept.
17.3 Annual Budget. Not later than sixty (60) days prior to the
-------------
commencement of each Lease Year, Tenant shall prepare and submit to Landlord an
operating budget (the "Operating Budget") and a capital budget (the "Capital
---------------- -------
Budget") prepared in accordance with the requirements of this Section 17.3. The
- ------ ------------
Operating Budget and the Capital Budget (together, the "Annual Budget") shall be
-------------
prepared in accordance with GAAP and the Uniform System of Accounts, to the
extent applicable, and show by month and quarter and for the year as a whole in
the degree of detail specified by the Uniform System of Accounts for
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<PAGE>
monthly statements, and in accordance with the detail level of monthly financial
statements, the following:
(a) Tenant's reasonable estimate of Gross Revenues (including room
rates and Room Revenues, Food Sales, Telephone Revenues, Beverage Sales, Parking
Revenues, Other Income or Additional Charges) for the forthcoming Lease Year
itemized on schedules on a monthly and quarterly basis as approved by Landlord
and Tenant, together with the assumptions, in narrative form, forming the basis
of such schedules;
(b) A cash flow projection, by calendar month, quarter and year;
(c) A marketing plan including a narrative description of the program
for advertising and marketing the Hotel for the forthcoming Lease Year
containing a detailed budget itemization of the proposed advertising expenditure
by category and the assumptions in narrative form, forming the basis of such
budget itemization;
(d) Tenant's reasonable estimate for each month of the Lease Year of
Participating Rent including Room Revenues, Food Sales, Beverage Sales, Parking
Revenues and Other Income;
(e) A schedule of all Capital Expenditures and Capital Repairs planned
for the forthcoming Lease Year;
(f) An operating budget including line item detail of all revenues and
expenses for the forthcoming Lease Year;
(g) A five (5) year plan of operations and anticipated Capital
Expenditures and Capital Repairs and an accounting of the Reserve Fund Account
and balances for such periods;
(h) A detailed staffing plan for the hotel operations, including any
anticipated changes in employee numbers or Key Employees, including a complete
explanation of the reasons therefor;
(i) Sensitivity analysis for 5%, 10% and 20% increases and decreases
in Gross Revenues from budgeted amount;
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(j) A schedule of all preventative maintenance to be performed during
the forthcoming Lease Year;
(k) Tenant's proposal for the Competitive Set; and
(l) Any other schedules reasonably requested by Landlord.
Landlord shall have thirty (30) days after the date on which it receives
the Annual Budget to review, approve, disapprove or change the entries and
information appearing in the Annual Budget including all of the schedules
included therewith. If the parties are not able to reach agreement on the
Annual Budget for any Lease Year during Landlord's thirty (30) day review
period, the parties shall attempt in good faith during the subsequent thirty
(30) day period to resolve any disputes, which attempt shall include, if
requested by either party, at least one (1) meeting of executive-level officers
of Landlord and Tenant. In the event the parties are still not able to reach
agreement on the Annual Budget for any particular Lease Year after complying
with the foregoing requirements of this Section 17.3, the parties shall adopt
------------
such portions of the Operating Budget and the Capital Budget as they may have
agreed upon, and any matters not agreed upon shall be referred to arbitration as
provided for in Article 23. Pending the results of such arbitration or the
----------
earlier agreement of the parties, (i) if the Operating Budget has not been
agreed upon, for the first ninety (90) days of the new Lease Year the Leased
Property will be operated in a manner reflecting the prior Lease Year's actual
revenues, and thereafter the Leased Property will be operated for the full Lease
Year (including the first ninety (90) days thereof) in a manner consistent with
the Gross Revenues actual results in the prior Lease Year and increased by five
(5%) percent, in each case without adjustment pursuant to Section 3.1.4 until a
-------------
new Operating Budget is adopted, and (ii) if the Capital Budget has not been
agreed upon, no Capital Expenditures shall be made unless the same are set forth
in a previously approved Capital Budget or are specifically required by Landlord
or are otherwise required to comply with Legal Requirements or to make emergency
repairs.
17.4 General Operations. Tenant shall furnish to Landlord:
------------------
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(a) Within thirty (30) days after receipt or modification thereof,
copies of all licenses authorizing Tenant and/or the Manager to operate the
Hotel for its Permitted Use; and
(b) Promptly after receipt or sending thereof, copies of all material
notices given or received by Tenant under the Management Agreement.
ARTICLE 18
----------
LANDLORD'S RIGHT TO INSPECT
---------------------------
18.1 Right to Inspect. Tenant shall permit, and shall cause the Manager to
----------------
permit, Landlord and its authorized representatives to inspect the Leased
Property during usual business hours upon reasonable notice and to make such
repairs as Landlord is permitted to make pursuant to the terms of this
Agreement, provided that any inspection or repair by Landlord or its
representatives will not unreasonably interfere with Tenant's use and operation
of the Leased Property and further provided that in the event of an emergency,
as determined by Landlord in its reasonable discretion, prior Notice shall not
be necessary. Landlord shall not communicate directly with any employees of
Tenant or Manager, other than to Tenant's or Manager's designated
representative, without the consent of Tenant (which consent shall not be
unreasonably withheld, delayed or conditioned).
ARTICLE 19
----------
LIMITATIONS
-----------
19.1 Personal Property Limitation. Anything contained in this Agreement to
----------------------------
the contrary notwithstanding, (i) the average of the adjusted tax basis, for
U.S. federal income tax purposes, of the items of Landlord's personal property
that are leased to the Tenant under this Agreement at the beginning and at the
end of any Lease Year shall not exceed 15% of the average of the aggregate
adjusted tax bases of the Leased Property at the beginning and at the end of
such Lease Year, and (ii) the value of the items of Landlord's personal property
that are leased to
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the Tenant under this Agreement shall not at any time exceed 10% of the value of
the Leased Property (together, the "Personal Property Limitation"). Landlord
----------------------------
and Tenant shall at all times cooperate in good faith and use their best efforts
to permit Landlord to comply with the Personal Property Limitation, which
compliance may include, by way of example only and not by way of limitation or
obligation, the purchase by Tenant at fair market value of personal property in
excess of the Personal Property Limitation. All such compliance shall be
effected in a manner which has no material net economic detriment to Tenant and
will not jeopardize the REIT's status as a real estate investment trust under
the applicable provisions of the Code. This Section 19.1 is intended to ensure
------------
that all of the Rent qualifies as "rents from real property," within the meaning
of Section 856(d) of the Code, and as rents described in Section 512(b)(3)(A) of
the Code, or any similar or successor provisions thereto, and shall be
interpreted in a manner consistent with such intent.
19.2 Tenant Ownership Limitation. Anything contained in this Agreement to
---------------------------
the contrary notwithstanding, Landlord shall not take, or permit an Affiliate of
Landlord to take, any action that would cause the REIT to own, directly or
indirectly, a 10% or more interest in the Tenant, or in the assets or net
profits of Tenant, within the meaning of Section 856(d) of the Code, or any
similar or successor provision thereto. Anything contained in this Agreement to
the contrary notwithstanding, Tenant shall not take, or permit an Affiliate of
Tenant to take, any action that would cause the REIT to own directly or
indirectly, a 10% or more interest in the Tenant, or in the assets or net
profits of Tenant, within the meaning of Section 856(d) of the Code, or any
similar or successor provision thereto.
19.3 Director, Officer and Employee Limitation. Anything contained in this
-----------------------------------------
Agreement to the contrary notwithstanding, Landlord and Tenant shall cooperate
to ensure that (a) no directors, trustees, officers or employees of Landlord,
the REIT or any Affiliate of the REIT shall be directors, officers or employees
of, or own any ownership interest in, Tenant or any Affiliate thereof (or any
Person who furnishes or renders services to the Tenant or manages or operates
the Leased Property), and (b) no directors, trustees, officers or employees of
Tenant or any Affiliate thereof (or of any Person who furnishes or renders
services to the Tenant or
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<PAGE>
manages or operates the Leased Property) shall be directors, officers or
employees of Landlord, the REIT or any Affiliate of the REIT.
ARTICLE 20
----------
HOTEL MORTGAGES
---------------
20.1 Landlord May Grant Liens. Without the consent of Tenant, Landlord
------------------------
may, subject to the terms and conditions set forth in this Section 20.1, from
------------
time to time, directly or indirectly, create or otherwise cause to exist any
lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased
-----------
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Any such Encumbrance
(other than a Hotel Mortgage, in which event the provisions of Section 20.2
------------
shall govern) shall be, and shall provide that it is, subject and subordinate to
the rights of Tenant under this Agreement. Additionally, Tenant shall cooperate
in all reasonable respects, and as generally described in Section 22.15, with
-------------
any transfer of the Leased Property to a Hotel Mortgagee that succeeds to the
interest of Landlord in the Leased Property (including, without limitation, in
connection with the transfer of any franchise, license, lease, permit, contract,
agreement, or similar item to such Hotel Mortgagee or such Hotel Mortgagee's
designee necessary or appropriate to operate the Leased Property). Landlord and
Tenant shall cooperate in (a) including in this Agreement by suitable amendment
from time to time any provision which may be reasonably requested by any
proposed lender, or may otherwise be reasonably necessary, to implement the
provisions of this Section 20.1 and (b) entering into any further agreement with
------------
or at the request of any Hotel Mortgagee which may be reasonably requested or
required by such Hotel Mortgagee in furtherance or confirmation of the
provisions of this Section 20.1; provided, however, that any such amendment or
------------ -------- -------
agreement shall not in any way affect the Term nor affect adversely in any
material respect any rights of Landlord or Tenant under this Agreement.
20.2 Subordination of Lease. Subject to Section 20.1 and this Section
---------------------- ------------ -------
20.2, any and all rights of Tenant hereunder, are and shall be subject and
subordinate to any ground or master
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lease, and all renewals, extensions, modifications and replacements thereof, and
to all mortgages and deeds of trust, which may now or hereafter affect the
Leased Property or any improvements thereon and/or any of such leases, whether
or not such mortgages or deeds of trust shall also cover other lands and/or
buildings and/or leases, to each and every advance made or hereafter to be made
under such mortgages and deeds of trust, and to all renewals, modifications,
replacements and extensions of such leases and such mortgages and deeds of trust
and all consolidations of such mortgages and deeds of trust. This Section 20.2
------------
shall be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant shall promptly execute,
acknowledge and deliver any instrument that Landlord, the lessor under any such
lease or the holder of any such mortgage or the trustee or beneficiary of any
deed of trust or any of their respective successors in interest may reasonably
request to evidence such subordination. Any lease to which this Agreement is,
at the time referred to, subject and subordinate is herein called "Superior
--------
Lease" and the lessor of a Superior Lease or its successor in interest at the
- -----
time referred to, is herein called "Superior Landlord" and any mortgage or deed
-----------------
of trust to which this Agreement is, at the time referred to, subject and
subordinate, is herein called "Superior Mortgage" and the holder, trustee or
-----------------
beneficiary of a Superior Mortgage is herein called "Superior Mortgagee".
------------------
Tenant shall have no obligations under any Superior Lease or Superior Mortgage
other than those expressly set forth in this Section 20.2. If any Superior
------------
Landlord or Superior Mortgagee or the nominee or designee of any Superior
Landlord or Superior Mortgagee shall succeed to the rights of Landlord under
this Agreement (any such person, "Successor Landlord"), whether through
------------------
possession or foreclosure action or delivery of a new lease or deed, or
otherwise, such Successor Landlord shall have the option either to terminate
this Agreement or to recognize Tenant's rights under this Agreement as herein
provided and, in such latter event, Tenant shall attorn to and recognize the
Successor Landlord as Tenant's landlord under this Agreement and Tenant shall
promptly execute and deliver any instrument that such Successor Landlord may
reasonably request to evidence such attornment (provided that such instrument
does not alter the terms of this Agreement), whereupon, this Agreement shall
continue in full force and effect as a direct lease between the Successor
Landlord and Tenant upon all of the terms, conditions
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and covenants as are set forth in this Agreement, except that the Successor
Landlord (unless formerly the landlord under this Agreement or its nominee,
designee or Affiliate) shall not be (a) liable in any way to Tenant for any act
or omission, neglect or default on the part of any prior Landlord under this
Agreement, (b) responsible for any monies owing by or on deposit with any prior
Landlord to the credit of Tenant (except to the extent actually paid, credited
or delivered to the Successor Landlord), (c) subject to any counterclaim or
setoff which theretofore accrued to Tenant against any prior Landlord, (d) bound
by any modification of this Agreement subsequent to such Superior Lease or
Mortgage, or by any previous prepayment of Minimum Rent or Participating Rent
for more than one (1) month in advance of the date due hereunder, which was not
approved in writing by the Superior Landlord or the Superior Mortgagee thereto,
(e) liable to Tenant beyond the Successor Landlord's interest in the Leased
Property and the rents, income, receipts, revenues, issues and profits issuing
from the Leased Property, (f) responsible for the performance of any work to be
done by the Landlord under this Agreement to render the Leased Property ready
for occupancy by Tenant or with respect to any insurance or Condemnation
proceeds), or (g) required to remove any Person occupying the Leased Property or
any part thereof, except if such Person claims by, through or under the
Successor Landlord. Tenant agrees at any time and from time to time to execute a
suitable instrument in confirmation of Tenant's agreement to attorn, as
aforesaid and, if Tenant has been requested to attorn, Landlord agrees to
provide Tenant with an instrument of non-disturbance and attornment from each
such Superior Mortgagee and Superior Landlord in form and substance reasonably
satisfactory to Tenant.
20.3 Notice to Mortgagee and Ground Landlord. Subsequent to the receipt by
---------------------------------------
Tenant of Notice from Landlord as to the identity of any Hotel Mortgagee or
ground lessor under a lease with Landlord, as ground lessee, which includes the
Leased Property as part of the demised premises and which complies with Sections
--------
20.1 and 20.2 (which Notice shall be accompanied by a copy of the applicable
- -------------
mortgage or lease), no notice from Tenant to Landlord as to the Leased Property
shall be effective unless and until a copy of the same is given to such Hotel
Mortgagee or ground lessor at the address set forth in the above described
Notice, and the curing of any of Landlord's defaults by such
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<PAGE>
Hotel Mortgagee or ground lessor shall be treated as performance by Landlord.
ARTICLE 21
----------
ADDITIONAL COVENANTS OF TENANT
------------------------------
21.1 Prompt Payment of Indebtedness. Tenant shall (a) pay or cause to be
------------------------------
paid when due all payments on Tenant's Indebtedness and shall not permit or
suffer any such Indebtedness to become or remain in default beyond any
applicable grace or cure period, (b) pay or cause to be paid when due all lawful
claims for labor and rents, (c) pay or cause to be paid when due all trade
payables and (d) pay or cause to be paid when due all other of Tenant's
Indebtedness upon which it is or becomes obligated, except, in each case, other
than that referred to in clause (a), to the extent payment is being contested in
good faith by appropriate proceedings in accordance with Article 8 and if Tenant
---------
shall have set aside on its books adequate reserves with respect thereto in
accordance with GAAP, if appropriate, or unless and until foreclosure, distraint
sale or other similar proceedings shall have been commenced.
21.2 Intentionally Omitted.
----------------------
21.3 Notice of Litigation, Etc. Tenant shall give prompt Notice to
--------------------------
Landlord of any litigation or any administrative proceeding to which Tenant may
hereafter become a party of which Tenant has notice or actual knowledge which
involves a potential liability equal to or greater than Fifty Thousand Dollars
($50,000.00) or which may otherwise result in any material adverse change in the
business, operations, property, results of operation or financial condition of
Tenant. Forthwith upon Tenant obtaining knowledge of any event or condition that
would be required to be disclosed in a current report filed by Tenant on Form 8-
K or in Part II of a quarterly report on Form 10-Q if Tenant were required to
file such reports under the Securities Exchange Act of 1934, as amended, Tenant
shall furnish Notice thereof to Landlord specifying the nature and period of
existence thereof and what action Tenant has taken or is taking or proposes to
take with respect thereto.
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21.4 Indebtedness of Tenant. Tenant shall not create, incur, assume or
----------------------
guarantee, or permit to exist, or become or remain liable directly or indirectly
upon, any Indebtedness except the following:
(a) Indebtedness of Tenant to Landlord;
(b) Indebtedness of Tenant for Impositions, to the extent that payment
thereof shall not at the time be required to be made in accordance with the
provisions of Article 8;
---------
(c) Indebtedness of Tenant in respect of judgments or awards (i) which
have been in force for less than the applicable appeal period and in
respect of which execution thereof shall have been stayed pending such
appeal or review, (ii) which are fully covered by insurance payable to
Tenant (subject to any deductibles permitted hereunder);
(d) Trade payables incurred in the ordinary course of business not to
exceed [_____].
21.5 Financial Condition of Tenant. Tenant shall at all times be Solvent.
-----------------------------
21.6 Limitation on Distributions. Tenant covenants that until Tenant's
---------------------------
"net worth" exceeds the sum of (x) twenty-five percent (25%) of the prior Fiscal
Year's Rent under this Agreement and any other Participating Leases plus (y)
----
Minimum Working Capital it shall retain all income it receives hereunder and
shall not pay any fees to an Affiliate outside the ordinary course of business
or distribute any earnings to its beneficial owners except (a) as needed for
income taxes payable with respect to the Leased Property, (b) for compensation
for Hotel operating expenses and other payments and, (c) for management fees not
to exceed [ %] percent of the Gross Revenues from the Leased Property. For the
purposes of this Section 21.6, the determination of Tenant's "net worth" for the
------------
First Lease Year shall be calculated based upon the Rent Tenant would have paid
for the prior Fiscal Year had this Agreement been in effect, which amount is set
forth on Exhibit A. In no event shall any amounts be payable by or to Tenant
---------
under the foregoing clauses (a) and (b) if such payment would violate Tenant's
covenant set
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forth in Section 21.15 or if, at the time of such proposed action,
-------------
or immediately after giving effect thereto, any Event of Default shall exist.
21.7 Prohibited Transactions. Tenant shall not permit to exist or enter
-----------------------
into any agreement or arrangement whereby it engages in a transaction of any
kind with any Affiliate of Tenant without the prior written consent of Landlord,
which consent may be withheld or granted in Landlord's sole discretion.
21.8 Liens and Encumbrances. Except as permitted by Section 7.1, Tenant
---------------------- -----------
shall not create or incur or suffer to be created or incurred or to exist any
Lien on this Agreement or any of Tenant's assets, properties, rights or income,
or any of its interest therein, now or at any time hereafter owned, other than:
(a) Permitted Encumbrances; and
(b) As permitted pursuant to Section 21.4.
------------
21.9 Merger, Sale of Assets, Etc. Tenant shall not (a) sell, lease (as
----------------------------
lessor or sublessor), transfer or otherwise dispose of, or abandon, all or any
material portion of its assets (including capital stock) or business to any
Person, (b) merge into or with or consolidate with any other Person, or (c)
sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or
abandon, any personal property or fixtures or any real property; provided,
--------
however, that, notwithstanding the provisions of clause (c) Tenant may dispose
- -------
of equipment or fixtures which have become inadequate, obsolete, worn-out,
unsuitable, undesirable or unnecessary, provided substitute equipment or
fixtures having equal or greater value and utility (but not necessarily having
the same function) have been provided.
21.10 Compliance with Franchise Agreement. If requested by Landlord,
-----------------------------------
Tenant shall become the Franchisee under the Franchise Agreement. To the extent
any of the provisions of the Franchise Agreement impose a greater obligation on
Landlord than the corresponding provisions of this Agreement, then Tenant shall
be obligated to comply with, and to take all reasonable actions necessary to
prevent breaches or defaults under, the provisions of the Franchise Agreement.
It is the intent of the parties hereto that Tenant shall comply in every respect
with the
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provisions of the Franchise Agreement so as to avoid any default thereunder
during the term of this Agreement. Landlord shall not terminate or enter into
any modification of the Franchise Agreement without in each instance first
obtaining Tenant's written consent (which shall not be unreasonably withheld or
delayed). Tenant shall not terminate the Franchise Agreement without Landlord's
prior written consent which may be withheld or granted in Landlord's sole
discretion. Landlord and Tenant agree to cooperate fully with each other in the
event it becomes necessary to obtain a franchise extension or modification or a
new franchise for the Leased Property, and in any transfer of the Franchise
Agreement to Landlord or any Affiliate thereof or any other successor to Tenant
upon the termination of this Agreement.
21.11 Termination Upon Revenue Performance Shortfall, Sale, Etc. (a)
----------------------------------------------------------
If (i) with respect to any two (2) Fiscal Years during the Term, Tenant shall
fail to realize from the operation of the Hotel an amount equal to at least
ninety-five (95%) percent of the actual Gross Revenues from the preceding Fiscal
Year, or (ii) with respect to any Fiscal Year during the term, Tenant shall fail
to realize from the operation of the Hotel an amount equal to at least ninety
(90%) percent of the actual Gross Revenues from the preceding Fiscal Year, or
(iii) with respect to any Fiscal Year during the Term the RevPAR Yield Index of
the Leased Property as of the end of such Fiscal Year shall have declined by
more than five (5) percentage points from the Leased Property's RevPAR Yield
Index at the end of the prior Fiscal Year, or (iv) with respect to any Fiscal
Year during the Term the RevPAR Yield Index of the Leased Property as of the end
of such Fiscal Year shall have declined by more than ten (10) percentage points
from the Leased Property's RevPAR Yield Index at the beginning of the Term, or
(v) with respect to any Fiscal Year during the Term, Tenant shall fail to
realize from the operation of the Hotel an amount equal to at least ninety (90%)
percent of the actual Gross Revenues from the Fiscal Year immediately preceding
the Commencement Date (each, a "Revenue Performance Shortfall"), such failure
-----------------------------
shall constitute a Revenue Performance Shortfall under this Lease; provided,
however, if a Force Majeure Event has occurred, then the time period for
determining a Revenue Performance Shortfall shall be extended for a period of
time equal to the time period for which the Force Majeure Event was in effect.
The existence of a Revenue Performance Shortfall for any Fiscal Year shall be
determined by Landlord on the basis
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of the Officer's Certificate delivered by Tenant to Landlord on or before
[_____] of the subsequent Fiscal Year pursuant to the requirements of Section
-------
3.1.2(b) and shall be subject to confirmation pursuant to Section 3.1.2(d).
- -------- ----------------
Notwithstanding anything to the contrary, however, Tenant shall have the right
to cure a Revenue Performance Shortfall with respect to any Fiscal Year during
the Term hereof by paying to Landlord, at the time of the annual reconciliation
of Participating Rent, pursuant to Section 3.1.2(c), the amount necessary during
----------------
such Fiscal Year to ensure that Landlord receives the same amount of
Participating Rent as Landlord would have received had there not been a Revenue
Performance Shortfall; provided, however, Tenant's right to cure a Revenue
Performance Shortfall shall be limited to one (1) time during the Term. Landlord
shall have no obligation to repay any amount advanced by Tenant to cure a
Revenue Performance Shortfall. Nothing contained in this Section 21.11 shall be
-------------
construed to alter or affect Tenant's obligation to pay Rent as otherwise
provided in this Agreement.
(b) Upon the occurrence of (i) a Revenue Performance Shortfall (unless
cured by Tenant within ten (10) days after Notice of termination as
provided in this subsection and unless caused by casualty, Condemnation or
any other cause beyond Tenant's control), (ii) the entering into by
Landlord of a bona-fide contract to sell the Leased Property to a non-
Affiliate (provided such sale actually occurs), (iii) a Tax Law Change
resulting in Landlord's determination to terminate this Agreement, (iv) a
Change of Control in Tenant (other than as provided in Section 22.22) or a
-------------
Change of Control of the Manager without Landlord's consent (which consent
will not be unreasonably withheld), or (v) a Material Franchise Change has
occurred, Landlord shall have the right, at Landlord's option, to terminate
this Agreement upon thirty (30) days' Notice to Tenant, in which event this
Agreement and the Management Agreement shall terminate and Tenant shall
immediately surrender the Leased Property to Landlord after the expiration
of such 30 day period, and, if Tenant fails to so surrender, Landlord shall
have the right, without notice, to enter upon and take possession of the
Leased Property and to expel or remove Tenant and its effects without being
liable for prosecution or any claim for damages therefor; and Tenant shall,
and hereby agrees to, indemnify Landlord for the total of (x) in the event
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that Tenant does not promptly surrender the Leased Property, the reasonable
costs of recovering the Leased Property and all other losses, liabilities
and reasonable expenses incurred by Landlord in connection with Tenant's
failure to surrender; (y) the unpaid Rent earned as of the date of
termination, plus interest at the Overdue Rate accruing after the due date;
and (z) all other sums of money then owing by Tenant to Landlord.
Landlord's election to terminate this Agreement as a result of a Tax Law
Change shall be deemed to be a determination to simultaneously terminate
all Participating Leases and to enter into a Management Agreement with any
of Tenant's Affiliates upon terms and conditions to be mutually agreed
upon.
21.12 Change in Operations. (a) The following events shall constitute
--------------------
changes in the operation of the Hotel ("Change in Operations") for the purposes
--------------------
of this Agreement: (i) a change in the franchisor, if any, or (ii) the
conversion of a subtenant, licensee or concessionaire to an operating department
of the Hotel or vice-versa without Landlord's consent, or (iii) Tenant's
decision to delegate or eliminate the operation of any food or beverage
operations at the Hotel, or (iv) the repositioning or expansion of the Hotel.
(b) If Tenant desires to implement a Change in Operations, Landlord
may accept or reject such change in its sole and absolute discretion. If
Landlord does not consent to the Change in Operations, Tenant shall not be
entitled to implement the proposed Change in Operations and this Agreement
shall remain in full force and effect.
(c) Notwithstanding anything to the contrary contained herein, no
adjustment of Rent pursuant to a Change in Operations shall be implemented
without the receipt by Landlord of an opinion from its tax counsel,
satisfactory to Landlord in form and substance, that such adjustment will
not adversely affect the REIT's ability to qualify as a real estate
investment trust under the applicable provisions of the Code.
21.13 Use of the Leased Property. Tenant covenants and agrees that
--------------------------
from and after the Commencement Date, and except for reasonable periods of time
required for remodeling or restoration
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<PAGE>
otherwise permitted hereunder, it shall continuously and without interruption
use and occupy the entire Leased Property (and not less than one hundred (100%)
percent of the Leased Property) solely for the purpose of the Permitted Use and
for no other purpose. Tenant's business in and throughout the Leased Property
shall continuously be conducted under the Tenant's, or Manager's, name, as the
case may be.
21.14 Continuing Covenants. Tenant, acknowledging that the Leased
--------------------
Property has been developed and is being maintained as a hotel consistent with
and in a manner such as to preserve the Landlord's property interest in the
Leased Property, and as a further inducement to Landlord to enter into this
Agreement, covenants and agrees with Landlord to:
(a) not abandon the Leased Property;
(b) maintain the Leased Property and the abutting grounds, sidewalks,
roads, parking and landscaped areas in good repair, order and condition;
(c) promptly make all necessary or desirable repairs, renewals,
replacements and additions, to the Leased Property;
(d) not commit or suffer waste with respect to the Leased Property;
(e) operate the Leased Property in accordance with the Minimum
Operating Standards so as not to diminish the value or integrity of the
Leased Property or the value of this Agreement;
(f) not make, suffer or permit any nuisance to exist on the Leased
Property;
(g) conduct its business in a manner consistent with the purpose and
character of the Leased Property and in accordance with the standards for
operating the type of business currently operated at the Leased Property in
a sufficient manner, consistent with and to preserve the Landlord's
property interest in the Leased Property;
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(h) keep the Land and Improvements clean and attractive in appearance
at all times and to keep any refuse in proper containers in the interior of
the Leased Property out of sight until the same is removed;
(i) neither do nor suffer anything to be done or kept in or about the
Leased Property which contravenes Landlord's insurance policies or
increases the premiums therefor;
(j) adequately heat and cool the Leased Improvements;
(k) not enter into any collective bargaining or similar agreement
without prior notification being given to Landlord;
(l) comply with the Franchise Agreement and not amend or otherwise
modify any provision thereof without Landlord's prior written consent;
(m) not enter into a contract for goods or services (x) in an amount
greater than twenty-five thousand dollars ($25,000.00) or (y) for a period
of more than one (1) year without Landlord's prior written consent, not to
be unreasonably withheld; and
(n) not enter into a lease for any items used in the operation of the
Leased Property (x) in an amount in excess of twenty-five thousand dollars
($25,000.00) or (y) for a period in excess of one (1) year without
Landlord's prior written consent, not to be unreasonably withheld.
21.15 Net Worth. Tenant covenants that it shall at all times during
---------
the Term maintain a "net worth" (the "Required Minimum Net Worth") which,
--------------------------
together with all amounts then held in the Security Deposit Account, shall be
equal to no less than the sum of (x) twenty-five (25%) percent of the prior
Fiscal Year's Rent payable under this Agreement and the Participating Leases;
provided, however, Tenant's Minimum Net Worth may be utilized to make payments
of Rent and to fund operational shortfalls under this Agreement and the
Participating Leases. For purposes hereof, "net worth" shall mean Tenant's
tangible net worth which shall be equal to the excess of Tenant's Assets over
its liabilities determined in accordance with GAAP; provided,
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<PAGE>
however, that the fair market value of Tenant's Assets and the full face amount
of all liabilities, including provision for income taxes on the appraised
increment, shall be utilized in such calculation. For purposes hereof, the
determination of Tenant's "net worth" for the First Lease Year, shall be
calculated based upon the Rent Tenant would have paid for the prior Fiscal Year
had this Agreement been in effect, which amount is set forth on Exhibit A.
---------
Tenant shall provide Landlord with an annual written certification of its
compliance with the foregoing requirement on the Commencement Date and the first
day of each subsequent Lease Year hereunder, provided, however, that Landlord
may, in addition, request not more than once during any Lease Year that Tenant
provide Landlord with a certification as of the date of such request of its
compliance with the foregoing requirement. Such certifications must be
reasonably satisfactory to Landlord as to matters certified therein and shall be
accompanied by such supporting financial information as Landlord may reasonably
request. Throughout the Term, Tenant's Required Minimum Net Worth (x) shall be
increased proportionately after the execution of any additional Participating
Lease in accordance therewith and (y) shall be decreased with the termination of
any Participating Leases (unless such termination results from an Event of
Default thereunder).
21.16 Other Activities. Tenant covenants, during the Term, that Tenant
----------------
will not engage in any business unrelated to the operation and management of the
Hotel or otherwise permitted under any Participating Leases.
21.17 Reservation System. Tenant shall not change, modify or terminate
------------------
the system for making reservations utilized at the Hotel without the prior
consent of Landlord which may be withheld or granted in Landlord's sole
discretion.
ARTICLE 22
----------
MISCELLANEOUS
-------------
22.1 Limitation on Payment of Rent. All agreements between Landlord and
-----------------------------
Tenant herein are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the
Rent or any
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other amounts payable to Landlord under this Agreement exceed the maximum
permissible under applicable law, the benefit of which may be asserted by Tenant
as a defense, and if, from any circumstance whatsoever, fulfillment of any
provision of this Agreement, at the time performance of such provision shall be
due, shall involve transcending the limit of validity prescribed by law, or if
from any circumstances Landlord should ever receive as fulfillment of such
provision such an excessive amount, then, ipso facto, the amount which would be
---- -----
excessive shall be applied to the reduction of the installment(s) of Minimum
Rent next due and not to the payment of such excessive amount. This provision
shall control every other provision of this Agreement and any other agreements
between Landlord and Tenant.
22.2 No Waiver. No failure by Landlord or Tenant to insist upon the strict
---------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the maximum extent permitted by law, no
waiver of any breach shall affect or alter this Agreement, which shall continue
in full force and effect with respect to any other then existing or subsequent
breach.
22.3 Remedies Cumulative. To the maximum extent permitted by law, each
-------------------
legal, equitable or contractual right, power and remedy of Landlord or Tenant,
now or hereafter provided either in this Agreement or by statute or otherwise,
shall be cumulative and concurrent and shall be in addition to every other
right, power and remedy and the exercise or beginning of the exercise by
Landlord or Tenant (as applicable) of any one or more of such rights, powers and
remedies shall not preclude the simultaneous or subsequent exercise by Landlord
of any or all of such other rights, powers and remedies.
22.4 Severability. Any clause, sentence, paragraph, section or provision
------------
of this Agreement held by a court of competent jurisdiction to be invalid,
illegal or ineffective shall not impair, invalidate or nullify the remainder of
this Agreement, but rather the effect thereof shall be confined to the clause,
sentence, paragraph, section or provision so held to be invalid, illegal or
ineffective, and this Agreement shall be
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<PAGE>
construed as if such invalid, illegal or ineffective provisions had never been
contained therein.
22.5 Acceptance of Surrender. No surrender to Landlord of this Agreement
-----------------------
or of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Landlord and
no act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
22.6 No Merger of Title. It is expressly acknowledged and agreed that it
------------------
is the intent of the parties that there shall be no merger of this Agreement or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly this Agreement or the
leasehold estate created hereby and the fee estate or ground landlord's interest
in the Leased Property.
22.7 Conveyance by Landlord. If Landlord or any successor owner of all or
----------------------
any portion of the Leased Property shall convey all or any portion of the Leased
Property in accordance with the terms hereof other than as security for a debt,
and the grantee or transferee of such of the Leased Property shall expressly
assume all obligations of Landlord hereunder arising or accruing from and after
the date of such conveyance or transfer, Landlord or such successor owner, as
the case may be, shall thereupon be released from all future liabilities and
obligations of Landlord under this Agreement with respect to such of the Leased
Property arising or accruing from and after the date of such conveyance or other
transfer and all such future liabilities and obligations shall thereupon be
binding upon the new owner.
22.8 Quiet Enjoyment. Provided that no Event of Default shall have
---------------
occurred and be continuing, Tenant shall peaceably and quietly have, hold and
enjoy the Leased Property for the Term, free of hindrance or molestation by
Landlord or any Person claiming by, through or under Landlord, but subject to
(a) any Encumbrance permitted under Article 20 or otherwise permitted to be
----------
created by Landlord hereunder, (b) all Permitted Encumbrances, (c) Liens as to
obligations of Landlord that are either not yet due or which are being contested
in good faith and
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by proper proceedings, provided the same do not materially interfere with
Tenant's ability to operate the Hotel and (d) Liens that have been consented to
in writing by Tenant. Except as otherwise provided in this Agreement, no failure
by Landlord to comply with the foregoing covenant shall give Tenant any right to
cancel or terminate this Agreement or abate, reduce or make a deduction from or
offset against the Rent or any other sum payable under this Agreement, or to
fail to perform any other obligation of Tenant hereunder.
22.9 Memorandum of Lease. Neither Landlord nor Tenant shall record this
-------------------
Agreement. However, Landlord and Tenant shall promptly, upon the request of the
other, enter into a short form memorandum of this Agreement, in form suitable
for recording under the laws of the State in which reference to this Agreement
shall be made. The parties shall share equally all costs and expenses of
recording such memorandum.
22.10 Notices.
-------
(a) Any and all notices, demands, consents, approvals, offers,
elections and other communications required or permitted under this
Agreement shall be given in writing and the same shall be delivered either
in hand, by telecopier with written acknowledgment of receipt, or by mail
or Federal Express or similar expedited commercial carrier, addressed to
the recipient of the notice, postpaid and registered or certified with
return receipt requested (if by mail), or with all freight charges prepaid
(if by Federal Express or similar expedited carrier).
(b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date
of acknowledged receipt, in the case of a notice by telecopier and, in all
other cases, upon the date of receipt or refusal, except that whenever
under this Agreement a notice is either received on a day which is not a
Business Day or is required to be delivered on or before a specific day
which is not a Business Day, the day of receipt or required delivery shall
automatically be extended to the next Business Day.
(c) All such notices shall be addressed,
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if to Landlord to:
c/o LaSalle Hotel Advisors
220 East 42nd Street
New York, New York 10017
Attention: Chief Operating Officer
Telecopier: (212) 687-8170
with a copy to:
LaSalle Partners
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Chief Financial Officer
and with a copy to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attn: Lee S. Saltzman, Esq.
Telecopier No.: (212) 839-5599
if to Tenant to:
[ ]
with a copy to:
[ ]
(d) By notice given as herein provided, the parties hereto and their
respective successors and assigns shall have the right from time to time
and at any time during the term of this Agreement to change their
respective addresses effective upon receipt by the other parties of such
notice and each shall have the right to specify as its address any other
address.
22.11 Construction. Anything contained in this Agreement to the
------------
contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination or expiration of this
Agreement with respect to the Leased Property shall survive such termination or
expiration.
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In no event shall Landlord or Tenant be liable for any consequential damages
suffered by the other as the result of a breach of this Agreement. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party to be charged.
All the terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Each term or provision of this Agreement to be performed by Tenant
shall be construed as an independent covenant and condition. Time is of the
essence with respect to the exercise of any rights of Tenant and Landlord under
this Agreement. Except as otherwise set forth in this Agreement, any obligations
of Tenant (including without limitation, any monetary, repair and
indemnification obligations) and Landlord shall survive the expiration or sooner
termination of this Agreement.
22.12 Counterparts, Headings. This Agreement may be executed in two or
----------------------
more counterparts, each of which shall constitute an original, but which, when
taken together, shall constitute but one instrument and shall become effective
as of the date hereof when copies hereof, which, when taken together, bear the
signatures of each of the parties hereto shall have been signed. Headings in
this Agreement are for purposes of reference only and shall not limit or affect
the meaning of the provisions hereof.
22.13 Applicable Law, Etc. This Agreement shall be interpreted,
--------------------
construed, applied and enforced in accordance with the laws of the State
applicable to contracts between residents of the State which are to be performed
entirely within the State, regardless of: (a) where this Agreement is executed
or delivered; (b) where any payment or other performance required by this
Agreement is made or required to be made; (c) where any breach of any provision
of this Agreement occurs, or any cause of action otherwise accrues; (d) where
any action or other proceeding is instituted or pending; (e) the nationality,
citizenship, domicile, principal place of business, or jurisdiction of
organization or domestication of any party; (f) whether the laws of the forum
jurisdiction otherwise would apply the law of a jurisdiction other than the
State; or (g) any combination of the foregoing.
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22.14 Right to Make Agreement. Each party warrants, with respect to
-----------------------
itself, that neither the execution of this Agreement, nor the consummation of
any transaction contemplated hereby, shall violate any provision of any law, or
any judgment, writ, injunction, order or decree of any court or governmental
authority having jurisdiction over it; nor result in or constitute a breach or
default under any indenture, contract, other commitment or restriction to which
it is a party or by which it is bound; nor require any consent, vote or approval
which has not been given or taken, or at the time of the transaction involved
shall not have been given or taken. Each party covenants that it has and will
continue to have throughout the term of this Agreement and any extensions
thereof, the full right to enter into this Agreement and perform its obligations
hereunder.
22.15 Transition Procedures. Upon the expiration or termination of the
---------------------
Term of this Agreement, for whatever reason, Landlord and Tenant shall do the
following (and the provisions of this Section 22.15 shall survive the expiration
-------------
or termination of this Agreement until they have been fully performed) and, in
general, shall cooperate in good faith to effect an orderly transition of the
Hotel. Nothing contained herein shall limit Landlord's rights and remedies
under this Agreement if such termination occurs as the result of an Event of
Default.
(a) Transfer of Licenses. Upon the expiration or earlier termination
--------------------
of the Term, Tenant shall use its best efforts (i) to transfer to Landlord
or Landlord's nominee all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
Government Agencies that may be necessary for the operation of the Hotel
(collectively, "Licenses") or (ii) if such transfer is prohibited by law or
--------
Landlord otherwise elects, to cooperate with Landlord or Landlord's nominee
in connection with the processing by Landlord or Landlord's nominee of any
applications for the transfer of all Licenses; provided, in either case,
that the costs and expenses of any such transfer or the processing of any
such application shall be paid by Landlord or Landlord's nominee.
(b) Leases and Concessions. Tenant shall assign to Landlord or
----------------------
Landlord's nominee simultaneously with the
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termination of this Agreement, all leases and concession agreements in
effect with respect to the Hotel then in Tenant's or Manager's name.
(c) Books and Records. To the extent that Landlord has not already
-----------------
made or received copies thereof, all books and records (including computer
records) for the Hotel kept by Tenant pursuant to Section 17.2 shall be
------------
promptly made available to Landlord or Landlord's nominee for photocopying
or other duplication.
(d) Receivables, Payables, and etc. Except with respect to Minimum
-------------------------------
Working Capital, or as otherwise provided herein, Tenant shall be entitled
to retain all cash, bank accounts and house banks, and to collect all Gross
Revenues and accounts receivable accrued through the termination date.
Tenant shall be responsible for the payment of Rent, all Gross Operating
Expenses of the Hotel and all other obligations of Tenant accrued under
this Agreement as of the termination date, and Landlord shall be
responsible for all operating expenses of the Hotel accruing after the
termination date.
22.16 Complimentary Rooms. Tenant shall make available (to the extent
-------------------
that same have not otherwise been committed) "deluxe" or "superior" guest rooms
and all related goods and services, including, without limitation, food and
beverages, telephones and facsimile services on a no-cost complimentary basis to
employees, advisors, consultants, trustees and members of the board of directors
of the REIT or the Landlord who are visiting the Hotel in connection with the
operations of the REIT or the Landlord or doing business in the State related to
the REIT or the Landlord.
22.17 Approval of Key Employees. Tenant shall not appoint, nor may
-------------------------
Tenant permit the Manager to appoint, any general manager, controller or
director of sales and marketing (each, a "Key Employee") for the Hotel without
------------
the prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed.
22.18 Incorporation of Prior Agreements. This Agreement and the
---------------------------------
attached exhibits set forth all the agreements, terms,
101
<PAGE>
covenants and conditions between Landlord and Tenant concerning the Leased
Property and there are no agreements, terms, covenants or conditions, oral or
written, between them other than those herein contained. No amendment, change or
addition to this Agreement shall be binding upon Landlord or Tenant unless it is
in writing and signed by each party.
22.19 Attorney's Fees. If either Landlord or Tenant retains an
---------------
attorney to enforce the terms of or determine rights under this Agreement, the
prevailing party shall be entitled to recover reasonable costs, attorney's fees
and expenses.
22.20 Intentionally Omitted.
---------------------
22.21 Governing Law. Submission to Jurisdiction. This Agreement is or
-------------
will be made and delivered in the State and shall be governed by and construed
and interpreted in accordance with the laws of the United States of America and
the State, without regard to principles of conflict of laws. All judicial
actions, suits or proceedings brought by or against Tenant with respect to its
rights, obligations, liabilities or any other matter under or arising out of or
in connection with this Agreement or any transaction contemplated hereby or for
recognition or enforcement of any judgment rendered in any such proceedings
shall be brought by Tenant, and may be brought by Landlord, in any state or
federal court in the State. By execution and delivery of this Agreement, Tenant
accepts, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts and irrevocably agrees to be bound by any final judgment
rendered thereby in connection with this Agreement or any transaction
contemplated hereby from which no appeal has been taken or is available. Tenant
hereby irrevocably waives any objections, including without limitation any
objection to the laying of venue or based on the grounds of forum non
----- ---
conveniens, which it may now or hereafter have to the bringing of any such
- ----------
action or proceeding in any such jurisdiction. Nothing herein shall affect the
right of Landlord to bring any action, suit or proceeding against Tenant in the
court of any jurisdiction. Tenant acknowledges that final judgment against it in
any action suit or proceeding referred to in this Section shall be conclusive
and may be enforced in any other jurisdiction by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the same.
102
<PAGE>
22.22 Change of Control of Tenant. If, during the Term, any Parent or
---------------------------
Affiliate (each a "Transferor") of Tenant has elected to transfer its interest
----------
in Tenant, which, for the purposes of this Agreement shall only be permitted in
conjunction with the sale of all, or substantially all, of Transferor's hotel
management businesses (a "Permitted Transfer"), then such Permitted Transfer
------------------
shall be made only upon the following terms and conditions:
(a) Transferor shall give written notice of the proposed Permitted
Transfer to Landlord (the "Sale Notice");
-----------
(b) Landlord shall have thirty (30) days from the date of receipt of
the Sale Notice to provide Transferor with written notice (the "Purchase
--------
Notice") of Landlord's intention to purchase, in Landlord's name or in the
------
name of Landlord's designee, Transferor's interest in Tenant at the then
Fair Market Value of such interest (the "Purchase");
--------
(c) If Landlord elects to make the Purchase, then any parties holding
remaining interests in Tenant (each a "Third Party") shall have the right,
-----------
but not the obligation, to require Landlord to purchase (the "Required
--------
Purchase") such remaining interests in the Tenant at the then Fair Market
--------
Value of such interests by delivering to Landlord, no later
than fifteen (15) days from Transferor's receipt of the Purchase Notice,
written notice (the "Third Party Notice") of such Third Party's Required
------------------
Purchase election;
(d) If any Third Party fails to exercise its Required Purchase
election as provided in subparagraph (c) above, then such Third Party shall
be deemed to have unconditionally consented to (i) the admission of
Landlord as a [limited][general] partner in Tenant and (ii) the amendment
of Tenant's partnership agreement to provide that said remaining Third
Party shall not transfer its interests in Tenant except as provided for in
this Section 22.22;
-------------
(e) The closing of the Purchase, and, if applicable, the Required
Purchase, shall occur within sixty (60) days from the later to occur of (x)
delivery of the Sale Notice or (y) delivery of the Third Party Notice;
103
<PAGE>
(f) If the parties fail to agree on the Fair Market Value of the
respective interests in Tenant, the matter shall be referred to arbitration
as provided for in Article 23; provided, however, unless and until the Fair
----------
Market Value of the respective interests in Tenant have been fully
determined, Landlord shall have no obligation to complete the Purchase or
the Required Purchase.
22.23 Non-Competition. During the Term and for one (1) year following
---------------
the expiration or earlier termination thereof, Tenant, or Tenant's Parent or
Affiliate shall not operate, manage, lease or own any interest, directly or
indirectly, in (a) any hotel or related facility under any name or (b) any other
type of business under the same or a similar name as the Hotel, within twenty
(20) miles of the Leased Property. The covenant set forth herein shall survive
the expiration or earlier termination of this Agreement.
ARTICLE 23
----------
ARBITRATION
-----------
23.1 Arbitration. In each case specified in this Agreement in which it
-----------
shall become necessary to resort to arbitration, such arbitration shall be
determined as provided in this Section 23.1. The party desiring such
------------
arbitration shall give Notice to that effect to the other party and an
arbitrator shall be selected by mutual agreement of the parties, or if they
cannot agree within thirty (30) days of such notice, by appointment made by the
American Arbitration Association ("AAA") from among the members of its panels
---
who are qualified and who have experience in resolving matters of a nature
similar to the matter to be resolved by arbitration.
23.2 Intentionally Omitted.
----------------------
23.3 Arbitration Procedures. In any arbitration commenced pursuant to
----------------------
Article 23, a single arbitrator shall be designated and shall resolve the
- ----------
dispute. The arbitrator's decision shall be binding on all parties and shall
not be subject to further review or appeal except as otherwise allowed by
applicable law. To the maximum extent practicable, the arbitrator and the
parties, and the AAA, if applicable, shall
104
<PAGE>
take any action necessary to insure that the arbitration shall be concluded
within ninety (90) days of the filing of such dispute. The fees and expenses of
the arbitrator shall be shared equally by Landlord and Tenant. Unless otherwise
agreed in writing by the parties or selected by the arbitrator or AAA, if
applicable, arbitration proceedings hereunder shall be conducted in New York
City. Notwithstanding formal rules of evidence, each party may submit such
evidence as each party deems appropriate to support its position and the
arbitrator shall have access to and the right to examine all books and records
of Tenant and Landlord regarding the Hotel during the arbitration.
105
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument as of the date above first written.
LANDLORD:
[_______________________]
By:
[____________________]
TENANT:
[_______________________]
By:
[____________________]
<PAGE>
EXHIBIT A
---------
Initial Reserve Fund Payment: $[________]
- ----------------------------
Manager: [_____________]
- -------
Minimum Rent: $[________] in [______], and $[________]
- ------------
thereafter.
Expiration Date: [_________________]
- ---------------
Minimum Net Worth for [ ]: [____________________]
- ---------------------------
Participating Rent: Participating Rent shall be an amount calculated by the
- ------------------
following formula (the "Revenues Computation"):
-------- -----------
For any Fiscal Quarter, Participating Rent shall equal:
The amount equal to the Quarterly Revenues Computation (defined below)
less
the amount equal to the Participating Rent previously paid for the
Lease Year to date
less
the amount equal to the Minimum Rent previously paid for the Lease
Year to date.
All calculations required to determine Participating Rent shall be prepared in
accordance with GAAP and the Uniform System of Accounts.
For purposes of defining the Quarterly Revenues Computation:
A-1
<PAGE>
(i) "Cumulative Quarterly Portion" shall mean a fraction having as its
----------------------------
numerator the total number of Fiscal Quarters (including partial Fiscal
Quarters) in a Lease Year which have elapsed prior to the Fiscal Quarter in
which a payment of Participating Rent is due, and having as its denominator
the total number of Fiscal Quarters (including partial Fiscal Quarters) in
the Lease Year. For example, the Cumulative Quarterly Portion in a four-
quarter Year for the quarterly Participating Rent payment due on the
twentieth day of April will be 1/4 and for the quarterly Participating Rent
payment due on the twentieth day of July will be 2/4, and such progression
shall continue for each successive Fiscal Quarter so that the Cumulative
Quarterly Portion for the quarterly Participating Rent payment due on the
twentieth day of January of the next Lease Year will be 4/4 or 100%.
(ii) "First Tier Room Revenues Percentage", "Second Tier Room Revenues
----------------------------------- -------------------------
Percentage", "Third Tier Room Revenues Percentage", "First Tier Food and
---------- ----------------------------------- -------------------
Beverage Sales Percentage", "Second Tier Food and Beverage Sales
------------------------- -----------------------------------
Percentage", "Third Tier Food and Beverage Sales Percentage", "First Tier
--------------------------------------------- ----------
Telephone Revenues Percentage", "Second Tier Telephone Revenues
----------------------------- ------------------------------
Percentage", "Third Tier Telephone Revenues Percentage", "First Tier Golf
---------------------------------------- ---------------
Sales Percentage", "Second Tier Golf Sales Percentage", "Third Tier Golf
---------------- --------------------------------- ---------------
Sales Percentage", "First Tier Retail Sales Percentage", "Second Tier
---------------- ---------------------------------- -----------
Retail Sales Percentage", "Third Tier Retail Sales Percentage", "First Tier
----------------------- ---------------------------------- ----------
Other Income Percentage", "Second Tier Other Income Percentage", "Third
----------------------- ----------------------------------- -----
Tier Other Income Percentage", "First Tier Parking Sales Percentage",
---------------------------- -----------------------------------
"Second Tier Parking Sales Percentage" and "Third Tier Parking Sales
------------------------------------- ------------------------
Percentage" shall mean the percentages corresponding to each of such terms
----------
as set forth on Schedule 1.
----------
(iii) "Annual Room Revenues First Break Point" and "Annual Room
-------------------------------------- -----------
Revenues Second Break Point", shall mean the amount of annual Room Revenues
---------------------------
corresponding to each of such terms as set forth on Schedule 1.
----------
(iv) "Annual Food and Beverage Sales First Break Point" and "Annual
------------------------------------------------ ------
Food and Beverage Sales Second Break Point"
------------------------------------------
A-2
<PAGE>
shall mean the amount of annual Food Sales and Beverage Sales corresponding
to each of such terms as set forth on Schedule 1.
----------
(v) "Annual Telephone Revenues First Break Point" and "Annual
------------------------------------------- ------
Telephone Revenues Second Break Point" shall mean the amount of annual
-------------------------------------
Telephone Revenues corresponding to each of such terms as set forth on
Schedule 1.
----------
(vi) "Annual Golf Sales First Break Point" and "Annual Golf Sales
----------------------------------- -----------------
Second Break Point" shall mean the amount of annual Golf Sales
------------------
corresponding to each of such terms as set forth on Schedule 1.
----------
(vii) "Annual Retail Sales First Break Point" and "Annual Retail Sales
------------------------------------- -------------------
Second Break Point" shall mean the amount of annual Retail Sales
------------------
corresponding to each of such terms as set forth on Schedule 1.
----------
(viii) "Annual Other Income First Break Point" and "Annual Other Income
------------------------------------- -------------------
Second Break Point" shall mean the amount of annual Other Income
------------------
corresponding to each of such terms as set forth on Schedule 1.
----------
(ix) "Annual Parking Sales First Break Point" and "Annual Parking
-------------------------------------- --------------
Sales Second Break Point" shall mean the amount of annual Parking Sales
------------------------
corresponding to each of such terms as set forth on Schedule 1.
----------
The "Quarterly Revenues Computation" shall be the amount obtained by
------------------------------
adding, for the applicable Lease Year, (i) an amount equal to the First
Tier Room Revenues Percentage of all year to date Room Revenues up to (but
not exceeding) the Cumulative Quarterly Portion of the Annual Room Revenues
First Break Point, (ii) an amount equal to the Second Tier Room Revenues
Percentage of all year to date Room Revenues in excess of the Cumulative
Quarterly Portion of the Annual Room Revenues First Break Point up to (but
not exceeding) the Cumulative Quarterly Portion of the Annual Room Revenues
Second Break Point, (iii) an amount equal to the Third Tier Room Revenues
Percentage of all year to date Room Revenues in excess of the Cumulative
Quarterly Portion of the Annual Room Revenues Second Break Point, (iv) an
A-3
<PAGE>
amount equal to the First Tier Food and Beverage Sales Percentage of the
Cumulative Quarterly Portion of all year to date Food Sales and Beverage
Sales up to (but not exceeding) the Cumulative Quarterly Portion of the
Annual Food and Beverage Sales First Break Point, (v) an amount equal to
the Second Tier Food and Beverage Sales Percentage of all year to date Food
Sales and Beverage Sales up to (but not exceeding) the Cumulative Quarterly
Portion of the Annual Food and Beverage Sales Second Break Point, (vi) an
amount equal to the Third Tier Food and Beverage Sales Percentage of all
year to date Food Sales and Beverage Sales in excess of the Cumulative
Quarterly Portion of the Annual Food and Beverage Sales Second Break Point,
(vii) an amount equal to the First Tier Telephone Revenues Percentage of
all year to date Telephone Revenues up to (but not exceeding) the
Cumulative Quarterly Portion of the Annual Telephone Revenues First Break
Point, (viii) an amount equal to the Second Tier Telephone Revenues
Percentage of all year to date Telephone Revenues up to (but not exceeding)
the Cumulative Quarterly Portion of the Annual Telephone Revenues Second
Break Point, (ix) an amount equal to the Third Tier Telephone Revenues
Percentage of all year to date Telephone Revenues in excess of the
Cumulative Quarterly Portion of the Annual Telephone Revenues Second Break
Point (x) an amount equal to the First Tier Golf Sales Percentage of the
Cumulative Quarterly Portion of all year to date Golf Sales up to (but not
exceeding) the Cumulative Quarterly Portion of the Annual Golf Sales First
Break Point, (xi) an amount equal to the Second Tier Golf Sales Percentage
of all year to date Golf Sales up to (but not exceeding) the Cumulative
Quarterly Portion of the Annual Golf Sales Second Break Point, (xii) an
amount equal to the Third Tier Golf Sales Percentage of all year to date
Golf Sales in excess of the Cumulative Quarterly Portion of the Annual Golf
Sales Second Break Point, (xiii) an amount equal to the First Tier Retail
Sales Percentage of the Cumulative Quarterly Portion of all year to date
Retail Sales up to (but not exceeding) the Cumulative Quarterly Portion of
the Annual Retail Sales First Break Point, (xiv) an amount equal to the
Second Tier Retail Sales Percentage of all year to date Retail Sales up to
(but not exceeding) the Cumulative Quarterly Portion of the Annual Retail
Sales Second Break Point, (xv) an amount equal to the Third Tier Retail
Sales Percentage of all year
A-4
<PAGE>
to date Retail Sales in excess of the Cumulative Quarterly Portion of the
Annual Retail Sales Second Break Point, (xvi) an amount equal to the First
Tier Other Income Percentage of all year to date Other Income up to (but
not exceeding) the Cumulative Quarterly Portion of the Annual Other Income
First Break Point, (xvii) an amount equal to the Second Tier Other Income
Percentage of all year to date Other Income up to (but not exceeding) the
Cumulative Quarterly Portion of the Annual Other Income Second Break Point,
(xviii) an amount equal to the Third Tier Other Income Percentage of all
year to date Other Income in excess of the Cumulative Quarterly Portion of
the Annual Other Income Second Break Point, (xix) an amount equal to the
First Tier Parking Sales Percentage of all year to date Parking Sales up to
(but not exceeding) the Cumulative Quarterly portion of the Annual Parking
Sales First Break Point, (xx) an amount equal to the Second Tier Parking
Sales Percentage of all year to date Parking Sales up to (but not
exceeding) the Cumulative Quarterly Portion of the Annual Parking Sales
Second Break Point, (xxi) an amount equal to the Third Tier Parking Sales
Percentage of all year to date Parking Sales in excess of the Cumulative
Quarterly Portion of the Annual Parking Sales Second Break Point.
If the Term begins or ends in the middle of a calendar year, then the
number of Fiscal Quarters falling within the Term during such calendar year
shall constitute a separate Lease Year. In that event, the Annual Room Revenues
First Break Point, the Annual Room Revenues Second Break Point, the Annual Food
and Beverage Sales First Break Point, the Annual Food and Beverage Sales Second
Break Point, the Annual Telephone Revenues First Break Point, the Annual
Telephone Second Break Point, the Annual Golf Sales First Break Point, the
Annual Golf Sales Second Break Point, the Annual Retail Sales First Break Point,
the Annual Retail Sales Second Break Point, the Annual Other Income First Break
Point, the Annual Other Income Second Break Point, the Annual Parking Sales
First Break Point and the Annual Parking Sales Second Break Point (collectively,
the "Break Points") shall each be multiplied by a fraction equal to (A) the
------------
number of Fiscal Quarters (including partial Fiscal Quarters) in the Lease Year
divided by (B) four (4), and the Cumulative Quarterly Portion for each of the
- ----------
Fiscal Quarters in such Lease Year shall be determined as set forth in the
definition of Cumulative Quarterly Portion above.
A-5
<PAGE>
Schedule 1
----------
[Year] [Year]
------ ------
First Tier Room
Revenues Percentage:
Annual Room Revenues
First Break Point:
Second Tier Room
Revenues Percentage:
Annual Room Revenues
Second Break Point:
Third Tier Room
Revenues Percentage:
First Tier Food and
Beverage Sales
Percentage:
Annual Food and
Beverage Sales First
Break Point:
Second Tier Food and
Beverage Sales
Percentage:
Annual Food and
Beverage Sales
Second Break Point:
Third Tier Food and
Beverage Sales
Percentage:
First Tier Telephone
Revenues Percentage:
Annual Telephone
Revenues First Break
Point:
Second Tier
Telephone Revenues
Percentage:
Annual Telephone
Revenues Second
Break Point:
Third Tier Telephone
Revenues Percentage:
1-1
<PAGE>
[Year] [Year]
------ ------
First Tier Golf
Sales Percentage:
Annual Golf Sales
First Break Point:
Second Tier Golf
Sales Percentage:
Annual Golf Sales
Second Break Point:
Third Tier Golf
Sales Percentage:
First Tier Retail
Sales Percentage:
Annual Retail Sales
First Break Point:
Second Tier Retail
Sales Percentage:
Annual Retail Sales
Second Break Point:
Third Tier Retail
Sales Percentage:
Annual Parking Sales
First Break Point:
Second Tier Parking
Sales Percentage:
Annual Parking Sales
Second Break Point:
Third Tier Parking
Sales Percentage:
First Tier Other
Income Percentage:
Annual Other Income
First Break Point:
1-2
<PAGE>
[Year] [Year]
------ ------
Second Tier Other
Income Percentage:
Annual Other Income
Second Break Point:
Third Tier Other
Income Percentage:
1-3
<PAGE>
EXHIBIT B
---------
[Hotel Standards]
B-1
<PAGE>
EXHIBIT C
---------
[Minimum Inventory]
B-2
<PAGE>
EXHIBIT D
---------
[Minimum Working Capital]
D-1
<PAGE>
EXHIBIT E
---------
The Land
--------
D-2
<PAGE>
Exhibit F
---------
SECURITY DEPOSIT
----------------
At the Commencement Date, Tenant shall deposit REIT Shares and/or OP Units with
an aggregate Current Market Value equal to twenty-five (25%) percent of the Rent
for the prior Fiscal Year, which shall constitute the Security Deposit. For the
1998 Lease Year, the Security Deposit will be as set forth on Schedule 1 annexed
hereto and made a part hereof. Annually throughout the Term, commencing on
January 1999, Landlord shall determine the then Current Market Value of the
Security Deposit. If the Current Market Value of the Security Deposit is less
than twenty (20%) percent of the Rent for the prior Fiscal Year, Tenant shall
deposit with Landlord, within twenty (20) days of the request therefor, an
amount of REIT Shares, OP Units, cash, or an irrevocable standby letter of
credit (a "Letter of Credit") which, together with the then existing Security
Deposit, will have a Current Market Value equal to twenty-five (25%) percent of
the Rent for the prior Lease Year, which amount, together with the existing
Security Deposit, shall constitute the Security Deposit. Throughout the Term,
irrespective of the then Current Market Value of the Security Deposit, Tenant
shall have no right to withdraw, substitute, or otherwise replace the Security
Deposit; provided, however, if the value of the Security Deposit exceeds the
minimum balance set forth herein, Tenant shall be entitled to reduce the amount
of any Letter of Credit provided herein to the amount which, together with the
then existing Security Deposit, will comply with the minimum balance for the
Security Deposit set forth herein.
<PAGE>
SCHEDULE 1
[TO BE COMPLETED PRIOR TO THE COMMENCEMENT DATE]
<PAGE>
AFFILIATED MASTER LEASE
=======================
LEASE AGREEMENT
DATED AS OF ______________
BY AND BETWEEN
LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
AS LANDLORD,
AND
LASALLE HOTEL LESSEE, INC.
AS TENANT
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
DEFINITIONS
1.1 AAA 1
1.2 Accounting Period............................ 1
1.3 Additional Charges........................... 1
1.4 Advisors 1
1.5 Affiliate 1
1.6 Agreement 2
1.7 Annual Budget................................ 2
1.8 Annual Food and Beverage Sales Break Points.. 2
1.9 **[Sea ViewAnnual Golf Sales Break Points.... 2
1.10 Annual Other Income Break Points............. 2
1.11 Annual Room Revenues Break Points............ 2
1.12 Applicable Laws.............................. 2
1.13 Approved Financial Institution............... 2
1.14 Award 3
1.15 Base Security Deposit........................ 3
1.16 Beverage Sales............................... 3
1.17 Business Day 3
1.18 Capital Budget............................... 3
1.19 Capital Expenditure.......................... 3
1.20 Capital Repair 3
1.21 Cash 3
1.22 Cash Equivalents............................. 3
1.23 Change of Control............................ 4
1.24 Change in Operations......................... 4
1.25 Claim 4
1.26 Code 4
1.27 Commencement Date............................ 4
1.28 Competitive Set.............................. 4
1.29 Condemnation 4
1.30 Condemnor 4
1.31 CPI 4
1.32 Current Market Value......................... 5
1.33 Date of Taking............................... 5
1.34 Default 5
1.35 Distribution 5
1.36 Dollars 5
1.37 Emergency Repairs............................ 5
1.38 Encumbrance 5
(i)
<PAGE>
1.39 Entity 5
1.40 Environment 5
1.41 Environmental Obligation..................... 5
1.42 Environmental Notice......................... 5
1.43 **[Sea View -- 1.43 Environmental Report..... 5
1.44 Event of Default............................. 5
1.45 Expiration Date.............................. 5
1.46 FF&E 6
1.47 Fair Market Value............................ 6
1.48 Financial Officer's Certificate.............. 6
1.49 Financials 6
1.50 Fiscal Quarter 6
1.51 Fiscal Year 6
1.52 Fixed Term 7
1.53 Fixtures 7
1.54 Food Sales 7
1.55 Force Majeure Event.......................... 7
1.56 Franchise Agreement.......................... 7
1.57 GAAP 7
1.58 **[Sea View Golf Sales....................... 7
1.59 Government Agencies.......................... 8
1.60 Gross Operating Expenses..................... 8
1.61 Gross Revenues............................... 8
1.62 Ground Lease 9
1.63 Ground Lease Payments........................ 9
1.64 Hazardous Substances......................... 9
1.65 Hotel 10
1.66 Hotel Mortgage............................... 10
1.67 Hotel Mortgagee.............................. 10
1.68 Hotel Standard............................... 10
1.69 Immediate Family............................. 10
1.70 Impositions 10
1.71 Incidental Documents......................... 11
1.72 Indebtedness 11
1.73 Initial Reserve Fund Payment................. 11
1.74 Insurance Requirements....................... 11
1.75 Insured Casualty............................. 11
1.76 Interest Rate 11
1.77 Inventory 11
1.78 Key Employee................................. 11
1.79 Land 11
1.80 Landlord 11
1.81 Landlord Liens............................... 12
1.82 Landlord Operating Expenses.................. 12
(ii)
<PAGE>
1.83 Lease Year 12
1.84 Leased Improvements.......................... 12
1.85 Leased Intangible Property................... 12
1.86 Leased Personal Property..................... 12
1.87 Leased Property.............................. 12
1.88 Legal Requirements........................... 12
1.89 Licenses 13
1.90 Lien 13
1.91 Management Agreement......................... 13
1.92 Manager 13
1.93 Material Franchise Change.................... 13
1.94 Measurement Date............................. 13
1.95 Minimum Inventory............................ 13
1.96 Minimum Operating Standards.................. 13
1.97 Minimum Rent................................. 13
1.98 Minimum Working Capital...................... 13
1.99 Net Cash Flow................................ 13
1.100 Net Operating Income......................... 14
1.101 Notice 14
1.102 Officer's Certificate........................ 14
1.103 Operating Budget............................. 14
1.104 OP Units 14
1.105 Other Income 14
1.106 Overdue Rate 14
1.107 Parent 14
1.108 Participating Leases......................... 14
1.109 Participating Rent........................... 14
1.110 Permitted Encumbrances....................... 14
1.111 Permitted Liens.............................. 14
1.112 Permitted Transfer........................... 14
1.113 Permitted Use 14
1.114 Prohibited Casualty.......................... 14
1.115 Person 15
1.116 Personal Property Limitation................. 15
1.117 Prohibited Taking............................ 15
1.118 Purchase 15
1.119 Purchase Notice.............................. 15
1.120 Records 15
1.121 REIT 15
1.122 REIT Shares 15
1.123 Rent 15
1.124 Replacement Cost............................. 15
1.125 Required Purchase............................ 15
1.126 Reserve Fund 15
(iii)
<PAGE>
1.127 Revenue Computation.......................... 15
1.128 Revenue Performance Shortfall................ 15
1.129 RevPAR 15
1.130 RevPAR Yield Index........................... 15
1.131 Room Revenues................................ 15
1.132 SEC 16
1.133 Sale Notice 16
1.134 Security Deposit............................. 16
1.135 Solvent 16
1.136 State 16
1.137 Subordinated Creditor........................ 16
1.138 Subordination Agreement...................... 16
1.139 Subsidiary 16
1.140 Successor Landlord........................... 17
1.141 Superior Landlord............................ 17
1.142 Superior Lease............................... 17
1.143 Superior Mortgage............................ 17
1.144 Superior Mortgagee........................... 17
1.145 Tax Law Change............................... 17
1.146 Telephone Revenues........................... 17
1.147 Tenant 17
1.148 Tenant's Assets.............................. 17
1.149 Tenant's Personal Property................... 17
1.150 Term 17
1.151 Third Party 17
1.152 Third Party Notice........................... 17
1.153 Transferor 17
1.154 Uniform System of Accounts................... 18
1.155 Unsuitable for Its Permitted Use............. 18
1.156 Work......................................... 18
ARTICLE 2
LEASED PROPERTY AND TERM
2.1 Leased Property............................... 18
2.2 Condition of Leased Property.................. 19
2.3 Fixed Term.................................... 20
ARTICLE 3
RENT
3.1 Rent.......................................... 20
(iv)
<PAGE>
3.2 Late Payment of Rent, Etc........................... 26
3.3 Net Lease........................................... 26
3.4 No Termination, Abatement, Etc...................... 26
ARTICLE 4
USE OF THE LEASED PROPERTY
4.1 Permitted Use. 27
4.2 Compliance with Legal/Insurance Requirements, Etc... 28
4.3 Environmental Matters............................... 28
ARTICLE 5
MAINTENANCE AND REPAIRS
5.1 Maintenance and Repair.............................. 30
5.2 Tenant's Personal Property.......................... 31
5.3 Surrender........................................... 32
5.4 Management Agreement................................ 32
5.5 Intentionally Deleted............................... 32
5.6 Minimum Inventory................................... 32
ARTICLE 6
IMPROVEMENTS, ETC.
6.1 Improvements to the Leased Property................. 33
6.2 Salvage............................................. 33
6.3 Reserve Fund........................................ 33
ARTICLE 7
LIENS
7.1 Liens............................................... 34
7.2 Landlord's Lien..................................... 34
ARTICLE 8
PERMITTED CONTESTS
8.1 Permitted Contests.................................. 35
(v)
<PAGE>
ARTICLE 9
INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements...................... 35
9.2 Replacement Cost.................................... 37
9.3 Waiver of Subrogation............................... 37
9.4 Form Satisfactory, Etc.............................. 37
9.5 Blanket Policy...................................... 37
9.6 No Separate Insurance............................... 38
9.7 Indemnification of Landlord......................... 38
9.8 Increase in Limits.................................. 39
ARTICLE 10
CASUALTY
10.1 Insurance Proceeds................................. 39
10.2 Damage or Destruction.............................. 39
10.3 Damage Near End of Term............................ 40
10.4 Tenant's Property.................................. 41
10.5 Restoration of Tenant's Property................... 41
10.6 Waiver............................................. 41
10.7 Casualty -- Conflicting Terms...................... 41
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc............................ 41
11.2 Partial Taking..................................... 41
11.3 Tenant's Award..................................... 42
11.4 Condemnation -- Conflicting Terms.................. 42
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default.................................. 42
12.2 Remedies........................................... 45
12.3 Tenant's Waiver.................................... 47
12.4 Application of Funds............................... 47
12.5 Landlord's Right to Cure Tenant's Default.......... 47
(vi)
<PAGE>
ARTICLE 13
HOLDING OVER
13.1 Holding Over........................................ 47
ARTICLE 14
LIMITATION ON LIABILITY
14.1 Limitation of Liability............................. 48
ARTICLE 15
SECURITY
15.1 Security Deposit................................... 48
15.2 Representations, Warranties and Covenants.......... 49
15.3 Possession and Maintenance of Security Deposit..... 49
ARTICLE 16
SUBLETTING AND ASSIGNMENT
16.1 Subletting and Assignment.......................... 50
16.2 Required Sublease Provisions....................... 50
16.3 Sublease Limitation................................ 51
ARTICLE 17
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
17.1 Estoppel Certificates.............................. 52
17.2 **[Omaha -- 17.2 Financial Statements............. 52
17.3 Annual Budget...................................... 53
17.4 **[Laguardia -- 17.4 Financial Statements......... 54
17.5 Annual Budget...................................... 55
17.6 **[Sea View -- 17.6 Financial Statements.......... 56
17.7 Annual Budget...................................... 57
17.8 General Operations................................. 57
ARTICLE 18
LANDLORD'S RIGHT TO INSPECT
(vii)
<PAGE>
18.1 Right to Inspect........................................ 58
ARTICLE 19
LIMITATIONS
19.1 Personal Property Limitation.............................. 58
19.2 Tenant Ownership Limitation............................... 58
19.3 Director, Officer and Employee Limitation................. 59
ARTICLE 20
HOTEL MORTGAGES
20.1 Landlord May Grant Liens................................... 59
20.2 Subordination of Lease..................................... 59
20.3 Notice to Mortgagee and Ground Landlord.................... 61
ARTICLE 21
ADDITIONAL COVENANTS OF TENANT
21.1 Prompt Payment of Indebtedness............................. 61
21.2 Intentionally Omitted...................................... 61
21.3 Notice of Litigation, Etc.................................. 61
21.4 Indebtedness of Tenant..................................... 62
21.5 Financial Condition of Tenant.............................. 62
21.6 Limitation on Distributions................................ 62
21.7 Prohibited Transactions.................................... 62
21.8 Liens and Encumbrances..................................... 62
21.9 Merger, Sale of Assets, Etc................................ 63
21.10 Compliance with Franchise Agreement........................ 63
21.11 Termination Upon Revenue Performance Shortfall, Sale, Etc.. 63
21.12 Change in Operations....................................... 64
21.13 Use of the Leased Property................................. 65
21.14 Continuing Covenants....................................... 65
21.15 Net Worth.................................................. 66
21.16 Other Activities........................................... 67
21.17 Reservation System......................................... 67
ARTICLE 22
MISCELLANEOUS
22.1 Limitation on Payment of Rent............................. 67
(viii)
<PAGE>
22.2 No Waiver................................................. 67
22.3 Remedies Cumulative....................................... 67
22.4 Severability.............................................. 68
22.5 Acceptance of Surrender................................... 68
22.6 No Merger of Title........................................ 68
22.7 Conveyance by Landlord.................................... 68
22.8 Quiet Enjoyment........................................... 68
22.9 Memorandum of Lease....................................... 69
22.10 Notices................................................... 69
22.11 Construction.............................................. 70
22.12 Counterparts, Headings.................................... 70
22.13 Applicable Law, Etc....................................... 70
22.14 Right to Make Agreement................................... 71
22.15 Transition Procedures..................................... 71
22.16 Complimentary Rooms....................................... 72
22.17 Intentionally Deleted..................................... 72
22.18 Incorporation of Prior Agreements......................... 72
22.19 Attorney's Fees........................................... 72
22.20 Early Termination......................................... 72
22.21 Governing Law............................................. 73
22.22 Change of Control of Tenant............................... 73
22.23 Intentionally Deleted..................................... 74
ARTICLE 23
ARBITRATION
23.1 Arbitration................................................ 74
23.2 Intentionally Omitted...................................... 74
23.3 Arbitration Procedures..................................... 74
(ix)
<PAGE>
EHXIBITS
A - Miscellaneous Initial Requirements/Terms
B - Hotel Standards
C - Minimum Inventory
D - Minimum Working Capital
E - The Land
F - Security Deposit
(x)
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into as of this ____ day of ________
by and between LASALLE HOTEL OPERATING PARTNERSHIP, L.P. as landlord
("Landlord"), and LASALLE HOTEL LESSEE, INC. as tenant ("Tenant").
-------- ------
W I T N E S S E T H :
-------------------
WHEREAS, Landlord owns fee simple title to the Leased Property (this
and other capitalized terms used and not otherwise defined herein having the
meanings ascribed to such terms in Article 1); and
---------
WHEREAS, Landlord wishes to lease the Leased Property to Tenant and
Tenant wishes to lease the Leased Property from Landlord, all subject to and
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article shall have the meanings assigned to them in this Article and include the
plural as well as the singular, (ii) all accounting terms not otherwise defined
herein shall have the meanings assigned to them in accordance with GAAP and the
Uniform System of Accounts, (iii) all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Agreement, (iv) all cites to specific
laws, rules, statutes, regulations, ordinances or codes shall be cites to the
applicable laws, rules, statutes, regulations, ordinances or codes of the United
States of America, and (v) the words "herein," "hereof," "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
1.1 "AAA" shall have the meaning given such term in Section 23.1.
--- ------------
1.2 "Accounting Period" shall mean each calendar month.
-----------------
1.3 "Additional Charges" shall have the meaning given such term in
------------------
Section 3.1.3.
- -------------
1.4 "Advisors" shall mean LaSalle Hotel Advisors.
--------
1.5 "Affiliate" shall mean, with respect to any Person, (a) in the
---------
case of any such Person which is a partnership, any partner in such partnership,
(b) in the case of any such Person
1
<PAGE>
which is a limited liability company, any member of such company, (c) any other
Person or Entity which is a Parent, a Subsidiary, or a Subsidiary of a Parent
with respect to such Person or company or to one or more of the Persons referred
to in the preceding clauses (a) and (b), (d) any other Person who is an officer,
director, trustee or employee of, or partner in, such Person or any Person
referred to in the preceding clauses (a), (b) and (c), and (e) any other Person
who is a member of the Immediate Family of such Person or of any Person referred
to in the preceding clauses (a) through (d).
1.6 "Agreement" shall mean this Lease Agreement, including all
---------
exhibits hereto, as it and they may be amended from time to time as herein
provided.
1.7 "Annual Budget" shall have the meaning given such term in
-------------
Section 17.3.
- ------------
1.8 "Annual Food and Beverage Sales Break Points" shall have the
-------------------------------------------
meaning given such term in Section 3.1.4.
-------------
1.9 **[Sea View"Annual Golf Sales Break Points" shall have the
------------------------------
meaning given such term in Section 3.1.4.]**
-------------
1.10 "Annual Other Income Break Points" shall have the meaning given
--------------------------------
such term in Section 3.1.4.
-------------
1.11 "Annual Room Revenues Break Points" and "Annual Telephone
--------------------------------- ------ ---------
Revenues Break Points" shall have the meanings given such terms in Section
- ---------------------- -------
3.1.4.
1.12 "Applicable Laws" shall mean all applicable laws, statutes,
---------------
regulations, rules, ordinances, codes, licenses, international treaties, permits
and orders, from time to time in existence, of all courts of competent
jurisdiction and Government Agencies, and all applicable judicial and
administrative and regulatory decrees, judgments and orders, including common
law rulings and determinations, relating to injury to, or the protection of,
real or personal property or human health (except those requirements which, by
definition, are solely the responsibility of employers) or the Environment,
including, without limitation, all valid and lawful requirements of courts and
other Government Agencies pertaining to reporting, licensing, permitting,
investigation, remediation and removal of underground improvements (including,
without limitation, treatment or storage tanks, or water, gas or oil wells), or
emissions, discharges, releases or threatened releases of Hazardous Substances,
chemical substances, pesticides, petroleum or petroleum products, pollutants,
contaminants or hazardous or toxic substances, materials or waste whether solid,
liquid or gaseous in nature, into the Environment, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances, underground improvements
(including, without limitation, treatment or storage tanks, or water, gas or oil
wells), or pollutants, contaminants or hazardous or toxic substances, material
or wastes, whether solid, liquid or gaseous in nature.
1.13 "Approved Financial Institution" shall mean (a) any United
------------------------------
States of America commercial bank which is FDIC insured and has a consolidated
net worth, as of any pertinent date under the terms of this Agreement, of not
less than $250,000,000 (as adjusted by CPI) and is otherwise reasonably
satisfactory to Landlord or (b) any other substantial United States of America
financial institution that is satisfactory to Landlord in its reasonable
discretion.
2
<PAGE>
1.14 "Award" shall mean all compensation, sums or other value
-----
awarded, paid or received by virtue of a total or partial Condemnation of the
Leased Property (after deduction of all reasonable legal fees and other
reasonable costs and expenses, including, without limitation, expert witness
fees, incurred by Landlord, in connection with obtaining any such award).
1.15 "Base Security Deposit" shall have the meaning given such term
---------------------
in Exhibit F attached hereto.
---------
1.16 "Beverage Sales" shall mean Gross Revenues from (a) the sale of
--------------
wine, beer, liquor or other alcoholic beverages, whether sold in a bar or
lounge, delivered to or available in a guest room, sold at meetings or banquets
or at any other location at the Hotel and (b) non-alcoholic beverages sold in a
bar or lounge. Such revenue shall include sales by Tenant and its permitted
subtenants, licensees and concessionaires if such permitted subtenant, licensees
or concessionaires are Affiliates of Tenant. Such revenue shall be determined
in a manner consistent with GAAP and the Uniform System of Accounts and shall
include (a) the fair market value of goods or services which have been provided
in exchange for beverages under bartering or trade arrangements, (b) the fair
market value of beverages provided under frequent traveler programs, gift
certificate programs or any other similar programs, and (c) the fair market
value of any other allowances deducted from beverage revenues (items (a)-(c)
being allocated to the respective revenues categories in accordance with the
Uniform System of Accounts). Such revenue shall not include: (a) any gratuity
or service charge added to a customer's bill or statement in lieu of gratuity
which is paid directly to an employee; or (b) sales taxes or taxes of any other
kind imposed on the sale of alcoholic or other beverages; or (c) the value of
any beverages provided to employees of Landlord, Tenant, any franchisor under
the Franchise Agreement or any guest on a complimentary basis. All credits,
rebates, refunds and credit card chargebacks relating to Beverage Sales shall be
deducted from Beverage Sales.
1.17 "Business Day" shall mean any day other than Saturday, Sunday,
------------
or any other day on which banking institutions in the State of New York, the
State of Delaware, the State of Illinois, or the State are authorized by law or
executive order to close.
1.18 "Capital Budget" shall have the meaning given such term in
--------------
Section 17.3.
- ------------
1.19 "Capital Expenditure" shall mean any expenditure treated as
-------------------
capital in nature in accordance with GAAP.
1.20 "Capital Repair" shall mean any renovation, replacement, repair
--------------
or improvement to the Leased Property (or portion thereof) the cost of which
constitutes a Capital Expenditure and any renovation, replacement, repair or
improvement set forth and approved in the Capital Budget.
1.21 "Cash" shall mean cash or other immediately available funds.
----
1.22 "Cash Equivalents" shall mean (a) any debt instrument with a
----------------
term of up to twelve (12) months that is issued by or backed by the full faith
and credit of the United States of America, (b) any certificate of deposit with
a term of up to twelve (12) months that is issued by an issuer that, on the date
of issuance and on each date of any renewal or reissuance thereof, is
an Approved Financial Institution, and which instrument and any applicable
assignment thereof is
3
<PAGE>
in form and substance reasonably satisfactory to the Landlord and (c) any
irrevocable, "clean" letter of credit issued by an issuer that, on the date of
issuance and on each date of any renewal or reissuance thereof, is an Approved
Financial Institution, and which instrument is in form and substance reasonably
satisfactory to the Landlord.
1.23 "Change of Control" shall mean (a) the sale, conveyance,
-----------------
assignment, encumbering, pledging, hypothecation, granting a security interest
in, granting of options with respect to, or other disposition of (directly or
indirectly, voluntarily or involuntarily, by operation of law or otherwise, and
whether or not for consideration) of any class of partnership interests, stock
or other equity interests in a Person (other than among existing holders of
interests in such Person on the Commencement Date and/or family members of such
holders and/or trusts for the benefit of any of the foregoing) that, upon a
transfer of any portion thereof, will create in the transferee thereof, directly
or indirectly, a majority of any class of partnership interest, stock or other
equity interests of such Person, or (b) with respect to the REIT, should the
Advisor no longer be employed by the REIT.
1.24 "Change in Operations" shall have the meaning given such term in
--------------------
Section 21.12.
- -------------
1.25 "Claim" shall have the meaning given such term in Section 8.1.
----- -----------
1.26 "Code" shall mean the Internal Revenue Code of 1986 and, to the
----
extent applicable, the Treasury Regulations promulgated thereunder, each as from
time to time amended.
1.27 "Commencement Date" shall mean the date of this Agreement.
-----------------
1.28 "Competitive Set" shall mean a determination made by Landlord
---------------
and Tenant annually, at the time of preparation and approval of the Annual
Budget, of an appropriate reference group of hotels which are considered
competitive with the Leased Property and which Tenant and Landlord shall agree
shall constitute the Competitive Set for such Fiscal Year. If Landlord or
Tenant fail to agree upon the Competitive Set, the matter shall be referred to
arbitration as provided for in Article 23.
----------
1.29 "Condemnation" shall mean (a) the exercise with respect to the
------------
Leased Property, whether by legal proceedings or otherwise, by a Condemnor of
any power of condemnation, (b) a voluntary sale or transfer of the Leased
Property by Landlord to a Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending, or (c) a taking or
voluntary conveyance of all or part of the Leased Property, or any interest
therein, or right accruing thereto or use thereof, as the result or in
settlement of any Condemnation or other eminent domain proceeding affecting the
Leased Property, whether or not the same shall have actually been commenced.
1.30 "Condemnor" shall mean any public or quasi-public authority, or
---------
private corporation or individual, having the power of Condemnation.
1.31 "CPI" shall mean the "Consumer Price Index" published by the
---
Bureau of Labor Statistics of the United States of America Department of Labor,
U.S. City Average, All Items for Urban Wage Earners and Clerical Workers (1982-
1984=100).
4
<PAGE>
1.32 "Current Market Value" shall mean, as of any pertinent date: (a)
--------------------
as to Cash and Cash Equivalents, the face amount thereof; (b) as to co-
investments in hotels by Tenant and Landlord, the value of such co-investment,
based on the value placed on the corresponding investment by Landlord or the
REIT in the most recent version of its own financial statements; and (c) as to
Marketable Securities, the closing price of such securities, as reported in The
Wall Street Journal for the trade date next preceding such pertinent date.
1.33 "Date of Taking" shall mean the date the Condemnor has the right
--------------
to possession of the Leased Property, or any portion thereof, in connection with
a Condemnation.
1.34 "Default" shall mean any event or condition which with the
-------
giving of notice and/or lapse of time may ripen into an Event of Default.
1.35 "Distribution" shall mean (a) any declaration or payment of any
------------
dividend (except dividends payable in common stock of Tenant) on or in respect
of any shares of any class of capital stock of Tenant, (b) any purchase,
redemption, retirement or other acquisition of any shares of any class of
capital stock of a corporation, (c) any other distribution on or in respect of
any shares of any class of capital stock of a corporation, or (d) any return of
capital to shareholders.
1.36 "Dollars" or "$" shall mean lawful money of the United States of
------- --
America which shall be legal tender for the payment of public and private debts
in the United States of America.
1.37 "Emergency Repairs" shall have the meaning given such term in
-----------------
Section 5.1.2(b).
- ----------------
1.38 "Encumbrance" shall have the meaning given such term in Section
----------- -------
20.1.
- ----
1.39 "Entity" shall mean any corporation, general or limited
------
partnership, limited liability company or partnership, stock company or
association, joint venture, association, company, trust, bank, trust company,
land trust, business trust, cooperative, any government or agency or political
subdivision thereof or any other entity.
1.40 "Environment" shall mean soil, surface waters, ground waters,
-----------
land, stream, sediments, surface or subsurface strata and ambient air.
1.41 "Environmental Obligation" shall have the meaning given such
------------------------
term in Section 4.3.1.
-------------
1.42 "Environmental Notice" shall have the meaning given such term in
--------------------
Section 4.3.1.
- -------------
1.43 **[Sea View -- 1.43 "Environmental Report" shall mean that
--------------------
certain Phase I Environmental Assessment Report prepared by Hygienetics
Environmental Services, Inc., dated as of September 1997, as amended or
supplemented]**
1.44 "Event of Default" shall have the meaning given such term in
----------------
Section 12.1.
- ------------
1.45 "Expiration Date" shall mean the date set forth on Exhibit A
--------------- ---------
attached hereto.
5
<PAGE>
1.46 "FF&E" shall mean all furniture, furnishings and equipment
----
(except equipment and fixtures attached to and forming a part of the Leased
Improvements) required for the operation of the Leased Improvements as a hotel,
including, without limitation, (a) office furnishings and equipment, (b)
specialized hotel equipment necessary for the operation of any portion of the
Leased Improvements as a hotel, including equipment for kitchens, laundries, dry
cleaning facilities, bars, restaurants, public rooms, commercial and parking
spaces, and recreational facilities, (c) all other furnishings and equipment as
necessary or desirable in the operation of the Leased Property in accordance
with the terms and conditions set forth in this Agreement, and (d) all
replacements, substitutions and additions of and to all of the foregoing.
1.47 "Fair Market Value" shall mean, as to a specific valuable asset,
-----------------
the purchase price which a seller would be able to obtain for such asset in an
arms-length transaction with a buyer which is not an Affiliate of the seller,
and taking into consideration all factors which might reasonably affect the
sales price of the asset in question, including, without limitation, if and as
appropriate, the existence of a control block or minority interest, the
anticipated impact on current market prices of immediate sale, the lack of a
market for such asset, and the impact on present value of factors such as length
of time before any such sales may become possible and the cost and complexity of
any such sales.
1.48 "Financial Officer's Certificate" shall mean, as to any Person,
-------------------------------
a certificate of the chief financial officer or chief accounting officer (or
such officer's authorized designee) of such Person, duly authorized,
accompanying the financial statements required to be delivered by such Person
pursuant to Section 17.2, in which such officer shall certify on behalf of such
------------
Person (a) that such statements have been properly prepared in accordance with
GAAP and the Uniform System of Accounts and are true, correct and complete in
all material respects and fairly present the financial condition of such Person
at and as of the dates thereof and the results of its and their operations for
the periods covered thereby, and (b) certify that such officer has reviewed this
Agreement and has no knowledge of any Default or Event of Default hereunder.
1.49 "Financials" shall mean, for any Fiscal Year or other accounting
----------
period of Tenant, statements of operations, partners' capital and cash flow (or,
in the case of a corporation, statements of operations, retained earnings and
cash flow) for such period and for the period from the beginning of the
respective Fiscal Year to the end of such period and the related balance sheet
as of the end of such period, together with the notes to any such yearly
statement, all in such detail as may be required by the SEC with respect to
filings made by the REIT or Landlord or as may be reasonably required by
Landlord, and setting forth in comparative form the corresponding figures for
the corresponding period in the preceding Fiscal Year, and prepared in
accordance with GAAP and the Uniform System of Accounts and audited annually
(and quarterly if required by the SEC or if reasonably required by Landlord) by
a nationally recognized firm of independent certified public accountants
proposed by Tenant and approved by Landlord, which approval shall not be
unreasonably withheld or delayed. Financials shall be prepared on the basis of
a December 31 fiscal year of Tenant.
1.50 "Fiscal Quarter" shall mean each fiscal quarter of the Fiscal
--------------
Year.
1.51 "Fiscal Year" shall mean each calendar year.
6
<PAGE>
-----------
1.52 "Fixed Term" shall have the meaning given such term in Section
---------- -------
2.3.
- ---
1.53 "Fixtures" shall have the meaning given such term in Section
-------- -------
2.l(d).
- ------
1.54 "Food Sales" shall mean (a) Gross Revenues from the sale of food
----------
and non-alcoholic beverages that are prepared at the Hotel and sold or delivered
on or off the Hotel by Tenant whether for cash or for credit, including in
respect of guest rooms, banquet rooms, meeting rooms and other similar rooms,
and (b) Gross Revenues from the rental of banquet, meeting and other similar
rooms. Such revenue shall include sales by Tenant and its permitted subtenants,
licensees and concessionaires, but as to subleases, licenses or similar
arrangements for food and non-alcoholic beverage sales which were entered into
by Landlord or any prior owner of the Leased Property with parties who are not
Affiliates of Tenant and which are existing as of the date of this Agreement,
such revenue shall only include rents received under such existing subleases,
licenses or similar arrangements. Such revenue shall be determined in a manner
consistent with GAAP and the Uniform System of Accounts and shall include (a)
the fair market value of goods or services which have been provided in exchange
for food under bartering or trade arrangements, (b) the fair market value of
food provided under frequent traveler programs, gift certificate programs or any
other similar programs, and (c) the fair market value of any other allowances
deducted from food revenues, (items (a)-(c) being allocated to the respective
revenues categories in accordance with the Uniform System of Accounts). Such
revenue shall not include: (a) vending machine sales; (b) any gratuities or
service charges added to a customer's bill or statement in lieu of gratuity
which is paid directly to an employee; (c) non-alcoholic beverages sold from a
bar or lounge; or (d) sales taxes or taxes of any other kind imposed on the sale
of food or non-alcoholic beverages; or (e) the value of food or non-alcoholic
beverages provided to employees of Landlord, Tenant, the franchisor under the
Franchise Agreement or any other guests on a complimentary basis. All credits,
rebates, refunds and credit card chargebacks relating to Food Sales shall be
deducted from Food Sales.
1.55 "Force Majeure Event" shall mean an interruption or diminution
-------------------
of the operation of the Hotel resulting from, or caused by, general strikes,
wars (declared or undeclared), civil unrest, natural disasters such as fires,
storms, floods or earthquakes, or other material extraordinary economic events
not reasonably foreseeable by the parties hereto as of the Commencement Date,
and which such interruption causes a delay in the performance of any material
term hereunder.
1.56 "Franchise Agreement" shall mean any franchise agreement or
-------------------
license agreement with a franchisor under which the Hotel is operated, but shall
not be deemed to include the Management Agreement.
1.57 "GAAP" shall mean generally accepted accounting principles of
----
the United States of America, consistently applied.
1.58 **[Sea View "Golf Sales" shall mean the Gross Revenues derived
----------
from the operation of a golf course at the Leased Property, including, but not
limited to, sales, lessons, greens fees, cart rentals, other rentals and other
income attributable thereto. Such revenue shall be determined in a manner
consistent with GAAP and the Uniform System of Accounts and shall include (a)
the fair market value of goods or services which have been provided in exchange
for
7
<PAGE>
goods, services or facility usage under bartering or trade arrangements, (b) the
fair market value of goods, services or facility usage which has been provided
under frequent traveler programs, gift certificate programs or any other similar
programs and (c) the fair market value of any other allowances deducted from
golf revenues (items (a)-(c) being allocated to the respective revenues
categories in accordance with the Uniform System of Accounts). Golf Sales shall
not include: (a) all sales taxes, and (b) the value of goods or services
provided to employees of Landlord, Tenant, the franchiser under the Franchise
Agreement or any other guests on a complimentary basis.]**
1.59 "Government Agencies" shall mean any court, agency, authority,
-------------------
board (including, without limitation, environmental protection, planning and
zoning), bureau, commission, department, office or instrumentality of any nature
whatsoever of any governmental or quasi-governmental unit of the country in
which the Leased Property is located or the State or any county or any political
subdivision of any of the foregoing, whether now or hereafter in existence,
having jurisdiction over Tenant or the Leased Property or any portion thereof or
the Hotel operated thereon.
1.60 "Gross Operating Expenses" shall mean all salaries and employee
------------------------
expense and payroll taxes (including salaries, wages, bonuses and other
compensation of all employees of the Hotel, and benefits including life, medical
and disability insurance and retirement benefits), operational supplies,
utilities, insurance to be provided by Tenant under the terms of this Lease,
governmental fees and assessments, food, beverages, laundry service expense, the
costs of Inventory, license fees, advertising, marketing, reservation systems
and any and all other operating expenses as are reasonably necessary for the
proper and efficient operation of the Hotel incurred by Tenant in accordance
with the provisions hereof (excluding, however, (i) federal, state and municipal
excise, sales and use taxes collected directly from patrons and guests or as a
part of the sales price of any goods, services or displays, such as gross
receipts, admissions, cabaret or similar or equivalent taxes paid over to
federal, state or municipal governments, (ii) the cost of insurance to be
provided by Landlord under Article 9, (iii) expenditures by Landlord, and (iv)
---------
payments on any Hotel Mortgage or other mortgage or security instrument on the
Hotel); all determined in accordance with GAAP. No part of Tenant's central
office overhead or general or administrative expenses (as opposed to that of the
Hotel) shall be deemed to be a part of Gross Operating Expenses, as herein
provided.
1.61 "Gross Revenues" shall mean all revenues, receipts, and income
--------------
of any kind derived directly or indirectly by Tenant from or in connection with
the Hotel (including rentals or other payments from their tenants, lessees,
licensees or concessionaires but not including their gross receipts) whether on
a cash basis or credit, paid or collected, determined in accordance with GAAP
and the Uniform System of Accounts, excluding, however: (a) funds furnished by
Landlord, (b) federal, state and municipal excise, sales, and use taxes
collected directly from patrons and guests or as a part of the sales price of
any goods, services or displays, such as gross receipts, admissions, cabaret or
similar or equivalent taxes and paid over to federal, state or municipal
governments, (c) gratuities, (d) proceeds of insurance and Awards, (e) proceeds
from sales of furnishings, fixtures and equipment which are permitted pursuant
to the terms of this Agreement, (f) all loan proceeds from financing or
refinancings of the Hotel or interests therein or components thereof, (g)
interest earned on funds deposited into the Reserve Fund and (h)
8
<PAGE>
judgments and awards, except any portion thereof arising from normal business
operations of the Hotel.
1.62 "Ground Lease" shall mean that certain Golf Course Lease between
------------
Marriott Corporation and MSSC Limited Partnership, dated as of May 4, 1988, as
amended by that certain First Amendment to Golf Course Lease dated as of October
26, 1990, and as further amended or assigned.
1.63 "Ground Lease Payments" shall mean any and all fees, costs and
---------------------
expenses, including, without limitation, ground rent payable under the Ground
Lease.
1.64 "Hazardous Substances" shall mean any substance:
--------------------
(a) the presence of which requires or may hereafter require
notification, investigation or remediation under any federal, state or
local statute, regulation, rule, ordinance, order, action or policy;
or
(b) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "pollutant" or
"contaminant" under any present or future federal, state or local
statute, regulation, rule, ordinance or international treaty or
amendment thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. et
--
seq.) and the Resource Conservation and Recovery Act (42 U.S.C.
----
section 6901 et seq.); or
-- ----
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
becomes regulated by any governmental authority, agency, department,
commission, board, agency or instrumentality of the country in which
the Leased Property is located, any state of the country in which the
Leased Property is located, or any political subdivision thereof; or
(d) the presence of which on the Leased Property causes or
materially threatens to cause an unlawful nuisance upon the Leased
Property or to adjacent properties or poses or materially threatens to
pose a hazard to the Leased Property or to the health or safety of
persons on or about the Leased Property; or
(e) without limitation, which contains gasoline, diesel fuel or
other petroleum hydrocarbons or volatile organic compounds; or
(f) without limitation, which contains polychlorinated biphenyls
(PCBs) or asbestos or urea formaldehyde foam insulation; or
(g) without limitation, which contains or emits radioactive
particles, waves or material; or
9
<PAGE>
(h) without limitation, constitutes materials which are now or
may hereafter be subject to regulation pursuant to the Material Waste
Tracking Act of 1988, or any Applicable Laws promulgated by any
Government Agencies.
1.65 "Hotel" shall mean the hotel being operated on the Leased
-----
Property.
1.66 "Hotel Mortgage" shall mean any Encumbrance placed upon the
--------------
Leased Property in accordance with Article 20.
----------
1.67 "Hotel Mortgagee" shall mean the holder of any Hotel Mortgage.
---------------
1.68 "Hotel Standard" shall mean both the operational standards (for
--------------
example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition and utility of the
Fixtures and Leased Personal Property, etc.) such that the Hotel and all of its
facilities and activities are operated in the same manner as is customary and
usual in the operation of a first class hotel, and, in any event, such that will
provide such facilities and services at the Hotel as are normally provided by
operators of hotels of comparable class and standing consistent with the Hotel's
facilities.
1.69 "Immediate Family" shall mean, with respect to any individual,
----------------
such individual's spouse, parents, brothers, sisters, children (natural or
adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-
in-law, sisters-in-law, nephews and nieces.
1.70 "Impositions" shall mean collectively, all taxes (including,
-----------
without limitation, all taxes imposed under the laws of the State, as such laws
may be amended from time to time, and all ad valorem, sales and use, value
added, single business, gross receipts, transaction privilege, rent or similar
taxes as the same relate to or are imposed upon Landlord, Tenant or the business
conducted upon the Leased Property), sewer or other rents and charges, excises,
tax levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property or the business
conducted thereon by Tenant (including all interest and penalties thereon due to
any failure in payment by Tenant), which at any time prior to, during or in
respect of the Term hereof may be assessed or imposed on or in respect of or be
a lien upon (a) Landlord's interest in the Leased Property, (b) the Leased
Property or any part thereof or any rent therefrom or any estate, right, title
or interest therein, or (c) any occupancy, operation, use or possession of, or
sales from, or activity conducted on, or in connection with the Leased Property
or the leasing or use of the Leased Property or any part thereof by Tenant;
provided, however, that nothing contained herein shall be construed to require
- -------- -------
Tenant to pay (i) any real estate and ad valorem taxes or special assessments
with respect to the Leased Property, **[Sea View (ii) Ground Lease Payments,]**
(iii) any tax based on income imposed on Landlord, (iv) any revenue tax of
Landlord, (v) any transfer fee or other tax imposed with respect to the sale,
exchange or other disposition by Landlord of the Leased Property or the proceeds
thereof (other than in connection with the sale, exchange or other disposition
to, or in connection with a transaction involving, Tenant), (vi) any single
business, gross receipts tax (other than a tax on any rent received by Landlord
from Tenant unless such gross receipts tax on such rent is in lieu of any other
tax, assessment, levy or charge otherwise excluded from this definition of
Impositions), transaction privilege, rent or
10
<PAGE>
similar taxes as the same relate to or are imposed upon Landlord, except to the
extent that any tax, assessment, tax levy or charge which is in effect at any
time during the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (iii) or (iv) preceding is
levied, assessed or imposed expressly in lieu thereof, (vii) any interest or
penalties imposed on Landlord as a result of the failure of Landlord to file any
return or report timely and in the form prescribed by law or to pay any tax or
imposition, except to the extent such failure is a result of a breach by Tenant
of its obligations pursuant to Section 3.1.3, (viii) any Impositions that are
-------------
enacted or adopted by their express terms as a substitute for any tax that would
not have been payable by Tenant pursuant to the terms of this Agreement or (ix)
any Impositions imposed as a result of a breach of covenant or representation by
Landlord in any agreement governing Landlord's conduct or operation or as a
result of the gross negligence or willful misconduct of Landlord.
1.71 "Incidental Documents" shall mean all of the documents or
--------------------
agreements entered into in connection with this Agreement.
1.72 "Indebtedness" shall mean all obligations, contingent or
------------
otherwise, which in accordance with GAAP should be reflected on the obligor's
balance sheet as liabilities.
1.73 "Initial Reserve Fund Payment" shall mean the sum set forth on
----------------------------
Exhibit A attached hereto.
- ---------
1.74 "Insurance Requirements" shall mean all terms of any insurance
----------------------
policy required by this Agreement, any Hotel Mortgage, **[Sea View -- or under
any Ground Lease]** and all requirements of the issuer of any such policy and
all orders, rules and regulations and any other requirements of the National
Board of Fire Underwriters (or any other body exercising similar functions)
binding upon Landlord, Tenant or the Leased Property.
1.75 "Insured Casualty" shall have the meaning given such term in
----------------
Section 10.2.1.
- ---------------
1.76 "Interest Rate" shall mean on any date, a per annum rate of
-------------
interest equal to the lesser of (a) the rate of interest announced by Citibank,
N.A. from time to time in New York City as its "prime" or "base" rate, as such
"prime" or "base" rate may change from time to time plus two percent (2%) per
annum and (b) the maximum rate then permitted under applicable law.
1.77 "Inventory" shall mean all food, beverages and other consumable
---------
items used in the operation of a hotel, such as fuel, soap, cleaning materials,
matches, stationery, brochures, folios and all other similar items, together
with unused reserve stock (as opposed to in-use operating supplies) of linens,
towels, paper goods, china, glassware, silverware and miscellaneous guest
supplies including but not limited to the items set forth in Exhibit C attached
---------
hereto, together with all substitutions and replacements thereof.
1.78 "Key Employee" shall have the meaning given such term in Section
------------ -------
22.17.
- -----
1.79 "Land" shall have the meaning given such term in Section 2.1(a).
---- --------------
1.80 "Landlord" shall have the meaning given such term in the
--------
preambles to this Agreement.
11
<PAGE>
1.81 "Landlord Liens" shall mean liens on or against the Leased
--------------
Property or any payment of Rent (a) which result from any act of, or any claim
against, Landlord or any owner of a direct or indirect interest in the Leased
Property, or which result from any violation by Landlord of any terms of this
Agreement, or (b) which result from liens in favor of any taxing authority by
reason of any tax owed by Landlord or any fee owner of a direct or indirect
interest in the Leased Property; provided, however, that "Landlord Lien" shall
-------- ------- -------------
not include any lien resulting from any tax for which Tenant is obligated to pay
or indemnify Landlord against until such time as Tenant shall have already paid
to or on behalf of Landlord the tax or the required indemnity with respect to
the same.
1.82 "Landlord Operating Expenses" shall mean, in each Fiscal Year or
---------------------------
portion thereof during the term hereof, all expenses for which Landlord is
responsible pursuant to the terms of this Agreement directly attributable to the
operation, repair and/or maintenance of the Leased Property including, without
limitation, property taxes, insurance premiums and Capital Repairs.
1.83 "Lease Year" shall mean any Fiscal Year or portion thereof,
----------
commencing with the 1998 Fiscal Year, during the Term.
1.84 "Leased Improvements" shall have the meaning given such term in
-------------------
Section 2.1(b).
- --------------
1.85 "Leased Intangible Property" shall mean all hotel licensing
--------------------------
agreements and other service contracts, equipment leases, booking agreements and
other arrangements or agreements affecting the ownership, repair, maintenance,
management, leasing or operation of the Leased Property to which Landlord is a
party; all books, records and files relating to the leasing, maintenance,
management or operation of the Leased Property belonging to Landlord; all
transferable or assignable permits, certificates of occupancy, operating
permits, sign permits, development rights and approvals, certificates, licenses,
warranties and guarantees, rights to deposits, telephone exchange numbers
identified with the Leased Property, and all other transferable intangible
property, miscellaneous rights, benefits and privileges of any kind or character
belonging to Landlord with respect to the Leased Property.
1.86 "Leased Personal Property" shall have the meaning given such
------------------------
term in Section 2.1(e).
--------------
1.87 "Leased Property" shall have the meaning given such term in
---------------
Section 2.1.
- -----------
1.88 "Legal Requirements" shall mean all federal, state, county,
------------------
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting the Leased Property or
the maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations, certificates and regulations necessary to
operate the Leased Property for its Permitted Use, and (b) all covenants,
agreements, restrictions and encumbrances contained in any instruments at any
time in force affecting the Leased Property, including those which may (i)
require material repairs, modifications or alterations in or to the Leased
Property or (ii) in any way materially and adversely affect the use and
12
<PAGE>
enjoyment thereof, but excluding any requirements arising as a result of
Landlord's or Landlord's Affiliates', as applicable, status as a real estate
investment trust.
1.89 "Licenses" shall have the meaning given such term in Section
-------- -------
22.15.
- -----
1.90 "Lien" shall mean any mortgage, security interest, pledge,
----
collateral assignment, or other encumbrance, lien or charge of any kind, or any
transfer of property or assets for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors.
1.91 "Management Agreement" shall mean the Management Agreement
--------------------
between Tenant and the Manager with respect to the Leased Premises, together
with all amendments, modifications and supplements thereto.
1.92 "Manager" shall have the meaning set forth on Exhibit A.
------- ---------
1.93 "Material Franchise Change" shall mean that the franchisor under
-------------------------
the Franchise Agreement, if any, or the name of the franchisor is rebranded,
repositioned, terminated, or otherwise subjected to a change in ownership or
control.
1.94 "Measurement Date" shall have the meaning given such term in
----------------
Section 3.1.4.
- -------------
1.95 "Minimum Inventory" shall have the meaning set forth on Exhibit
----------------- -------
C.
- -
1.96 "Minimum Operating Standards" shall mean the standards of
---------------------------
operation of the Hotel by which Tenant shall operate the Hotel in conformance
with a commercially practicable manner and in conformance with the Hotel
Standard for first class hotels and in such a fashion that Landlord's valuable
interest in the Hotel shall not decrease through such operations and such that
the Hotel shall at no time be operated pursuant to a lower standard (i.e.,
----
quality and reputation) than exists at the Commencement Date.
1.97 "Minimum Rent" shall mean, with respect to each Accounting
------------
Period, the sum set forth on Exhibit A attached hereto as increased (but in no
---------
event decreased) by CPI pursuant to Section 3.1.4; provided, however, that
-------------
Minimum Rent shall be adjusted if, as a result of a partial Condemnation or a
casualty which, in each instance and in the reasonable judgment of Landlord,
after consultation with Tenant, makes it impossible to restore a portion of the
Leased Improvements, by a fraction (i) the numerator of which is the number of
rooms which cannot be restored, and (ii) the denominator of which is the total
number of hotel rooms located in the Hotel prior to such casualty or partial
Condemnation.
1.98 "Minimum Working Capital" shall mean the sum set forth on
-----------------------
Exhibit D attached hereto.
- ---------
1.99 "Net Cash Flow" shall mean Gross Revenues minus (x) Rent, (y)
------------- -----
Gross Operating Expenses, and (z) income taxes on Tenant's income derived from
the operation of the Leased Property.
13
<PAGE>
1.100 "Net Operating Income" shall mean in each Fiscal Year or
--------------------
portion thereof during the term hereof, Rent less Landlord Operating Expenses.
1.101 "Notice" shall mean a notice given in accordance with Section
------ -------
22.10.
- -----
1.102 "Officer's Certificate" shall mean a certificate signed by an
---------------------
officer of the certifying Entity duly authorized by the president of the
certifying Entity.
1.103 "Operating Budget" shall have the meaning given such term in
----------------
Section 17.3.
- ------------
1.104 "OP Units" shall mean limited partnership interests in
--------
Landlord.
1.105 "Other Income" shall mean all revenue, receipts and income of
------------
any kind, including, but not limited to, interest income, but excluding
interest, earnings, or distributions with respect to the Security Deposit, the
Reserve Fund, or contributions to working capital made by Tenant, of any kind
derived directly or indirectly from or in connection with the Hotel and included
in Gross Revenues other than Room Revenues, Food Sales, Beverage Sales,
Telephone Revenues, and **[Sea View -- Golf Sales]**.
1.106 "Overdue Rate" shall mean, on any date, a per annum rate of
------------
interest equal to the lesser of the Interest Rate plus two percent (2%) per
annum and the maximum rate then permitted under applicable law.
1.107 "Parent" shall mean, with respect to Tenant, any Person which
------
owns directly, or indirectly through one or more Subsidiaries or Affiliates,
five percent (5%) or more of the voting or beneficial interest in, or otherwise
has the right or power (whether by contract, through ownership of securities or
otherwise) to control, Tenant.
1.108 "Participating Leases" shall mean any and all other leases
--------------------
executed at any time prior to or during the Term between Tenant and Landlord
with regard to the operation and/or management of hotel properties owned by
Landlord.
1.109 "Participating Rent" shall have the meaning given such term in
------------------
Section 3.1.2(a).
- ----------------
1.110 "Permitted Encumbrances" shall mean all rights, restrictions,
----------------------
and easements of record set forth on the applicable owner's or leasehold title
insurance policy issued to Landlord on the date hereof, plus any other such
encumbrances as may have been consented to in writing by Landlord from time to
time.
1.111 "Permitted Liens" shall mean any Liens granted in accordance
---------------
with Section 21.8(a).
---------------
1.112 "Permitted Transfer" shall have the meaning given such term in
------------------
Section 22.22.
- -------------
1.113 "Permitted Use" shall mean any use of the Leased Property
-------------
permitted pursuant to Section 4.1.1.
-------------
1.114 "Prohibited Casualty" shall have the meaning given such term
-------------------
in Section 10.2.1.
--------------
14
<PAGE>
1.115 "Person" shall mean any individual or Entity, and the heirs,
------
executors, administrators, legal representatives, successors and assigns of such
Person where the context so admits.
1.116 "Personal Property Limitation" shall have the meaning given
----------------------------
such term in Section 19.1.
------------
1.117 "Prohibited Taking" shall have the meaning given such term in
-----------------
Section 11.1.
- ------------
1.118 "Purchase" shall have the meaning given such term in Section
-------- -------
22.22.
- -----
1.119 "Purchase Notice" shall have the meaning given such term in
---------------
Section 22.22.
- -------------
1.120 "Records" shall have the meaning given such term in Section
------- -------
7.2.
- ---
1.121 "REIT" shall mean LaSalle Hotel Properties.
----
1.122 "REIT Shares" shall mean shares of common stock issued by the
-----------
REIT.
1.123 "Rent" shall mean, collectively, the Minimum Rent,
----
Participating Rent and Additional Charges.
1.124 "Replacement Cost" shall have the meaning given such term in
----------------
Section 9.2.
- -----------
1.125 "Required Purchase" shall have the meaning given such term is
-----------------
Section 22.22.
- -------------
1.126 "Reserve Fund" shall have the meaning set forth in Section
------------ -------
6.3.
1.127 "Revenue Computation" shall have the meaning given such term
-------------------
in Exhibit A.
---------
1.128 "Revenue Performance Shortfall" shall have the meaning given
-----------------------------
such term in Section 21.11.
-------------
1.129 "RevPAR" shall mean, with respect to a particular Hotel, the
------
room revenue per available room.
1.130 "RevPAR Yield Index" shall mean the percentage amount obtained
------------------
by dividing the RevPAR of the Leased Property by the RevPAR of the Leased
Property's Competitive Set.
1.131 "Room Revenues" shall mean Gross Revenues determined in a
-------------
manner consistent with GAAP and the Uniform System of Accounts, from the rental
of guest rooms whether to individuals, groups or transients, at the Hotel,
including, but not limited to (a) the fair market value of goods or services
which have been provided in exchange for rooms under bartering or trade
arrangements, (b) the fair market value of rooms provided under frequent
traveler programs, gift certificate programs or any other similar programs, (c)
the fair market value of any other allowances or commissions deducted from room
rates, including, but not limited to, discounts and travel agent commissions
(items (a)-(c) being allocated to the respective revenues categories in
accordance with the Uniform System of Accounts) and (d) other Gross Revenues
received from cancellation of room reservations, retained deposits, and other
income derived
15
<PAGE>
from reservation changes. Room Revenues shall not include: (a) all sales taxes
or any other taxes imposed on the rental of such guest rooms, and (b) any fees
collected for amenities including, but not limited to, telephone, laundry,
movies or concessions and (c) the value of rooms provided to employees of
Landlord, Tenant, the franchisor under the Franchise Agreement or guests on a
complimentary basis ("Complimentary Rooms"); provided, however, to the extent
the Complimentary Rooms (but not including Complimentary Rooms provided pursuant
to Section 22.16) exceed two (2%) percent of the aggregate room rentals for a
Fiscal Year, the fair market value of such excess shall not be excluded from
Room Revenues, and such amounts shall be added to Gross Revenues for the last
Fiscal Quarter of the preceding Fiscal Year. All credits, rebates, refunds and
credit card chargebacks, except to the extent that such Room Revenues were
originally collected prior to the Commencement Date, shall be deducted from Room
Revenues.
1.132 "SEC" shall mean the United States of America Securities and
---
Exchange Commission or any successor agency.
1.133 "Sale Notice" shall have the meaning given such term in
-----------
Section 22.22.
- -------------
1.134 "Security Deposit" shall have the meaning given such term in
----------------
Section 15.1.
- ------------
1.135 "Solvent" shall mean, as to any Person, that (a) the sum of
-------
the assets of such Person, at a fair valuation, exceeds its liabilities,
including contingent liabilities, (b) such Person has sufficient capital with
which to conduct its business as presently conducted and as proposed to be
conducted and (c) such Person has not incurred debts, and does not intend to
incur debts, beyond its ability to pay such debts as they mature. For purposes
of this definition, "debt" means any liability on a claim, and "claim" means (a)
---- -----
a right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, or (b) a right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured. With respect to any such contingent liabilities, such liabilities
shall be computed in accordance with GAAP and the Uniform System of Accounts at
the amount which, in light of all the facts and circumstances existing at the
time, represents the amount which can reasonably be expected to become an actual
or matured liability.
1.136 "State" shall mean the state or district in which the Leased
-----
Property is located.
1.137 "Subordinated Creditor" shall mean any creditor of Tenant
---------------------
which is a party to a Subordination Agreement in favor of Landlord.
1.138 "Subordination Agreement" shall mean any agreement executed by
-----------------------
a Subordinated Creditor pursuant to which the payment and performance of
Tenant's obligations to such Subordinated Creditor are subordinated to the
payment and performance of Tenant's obligations to Landlord under this
Agreement.
1.139 "Subsidiary" shall mean, with respect to any Person, any
----------
Entity (a) in which such Person owns directly, or indirectly through one or more
Subsidiaries, fifty-one percent (51%) or more of the voting or beneficial
interest or (b) which such Person otherwise has the right or power to control
(whether by contract, through ownership of securities or otherwise).
16
<PAGE>
1.140 "Successor Landlord" shall have the meaning given such term in
------------------
Section 20.2.
- ------------
1.141 "Superior Landlord" shall have the meaning given such term in
-----------------
Section 20.2.
- ------------
1.142 "Superior Lease" shall have the meaning given such term in
--------------
Section 20.2.
- ------------
1.143 "Superior Mortgage" shall have the meaning given such term in
-----------------
Section 20.2.
- ------------
1.144 "Superior Mortgagee" shall have the meaning given such term in
------------------
Section 20.2.
- ------------
1.145 "Tax Law Change" shall mean a change in the Code (including,
--------------
without limitation, a change in the Treasury regulations promulgated thereunder)
or in the judicial or administrative interpretations of the Code, which in the
opinion of Landlord's counsel will permit Landlord or an Affiliate thereof to
operate the Hotel as a hotel without adversely affecting the REIT's
qualification for taxation as a real estate investment trust under the
applicable provisions of the Code.
1.146 "Telephone Revenues" shall mean all revenues, receipts and
------------------
income of any kind derived from the use of telephone facilities by guests of the
hotel, including, without limitation, revenues from local and long distance
calls, service charges and commissions received from pay stations.
1.147 "Tenant" shall have the meaning given such term in the
------
preambles to this Agreement.
1.148 "Tenant's Assets" shall mean, when calculating Tenant's "net
---------------
worth" hereunder, the following items owned by Tenant free and clear of all
liens, encumbrances, security interests and restrictions, other than any
security interest granted to Landlord pursuant to the terms of this Agreement,
(a) working capital available for the day to day operations of the Hotel; (b)
investment grade marketable securities; (c) REIT Shares; (d) OP Units; and (e)
coinvestments made by the Tenant with the Landlord in other hotel projects.
1.149 "Tenant's Personal Property" shall mean (a) all consumables
--------------------------
located at the Hotel and (b) all personal property of Tenant, if any, owned by
Tenant and located at the Leased Property or used in Tenant's business at the
Leased Property and all modifications, replacements, alterations and additions
to such personal property acquired at the expense of Tenant, other than any
items included within the definition of Fixtures or Leased Personal Property.
1.150 "Term" shall mean the Fixed Term.
----
1.151 "Third Party" shall have the meaning given such term in
-----------
Section 22.22.
- -------------
1.152 "Third Party Notice" shall have the meaning given such term in
------------------
Section 22.22.
- -------------
1.153 "Transferor" shall have the meaning given such term in Section
---------- -------
22.22.
- -----
17
<PAGE>
1.154 "Uniform System of Accounts" shall mean A Uniform System of
-------------------------- -------------------
Accounts for Hotels, Ninth Revised Edition, 1996, as published by the Hotel
- -------------------
Association of New York City, as same may be revised, amended or supplemented.
1.155 "Unsuitable for Its Permitted Use" shall mean a state or
--------------------------------
condition of the Hotel such that (a) following any damage or destruction
involving the Hotel, the Hotel cannot be operated in the good faith judgment of
Tenant or the Manager on a commercially practicable basis for its Permitted Use
and it cannot reasonably be expected to be restored to substantially the same
condition as existed immediately before such damage or destruction, and as
otherwise required by Section 10.2.4, within six (6) months following such
--------------
damage or destruction or such shorter period of time as to which business
interruption insurance is available to cover Rent and other costs related to the
Leased Property following such damage or destruction, or (b) as the result of a
partial taking by Condemnation, the Hotel cannot be operated, in the good faith
judgment of Tenant or the Manager on a commercially practicable basis for its
Permitted Use.
1.156 "Work" shall have the meaning given such term in Section
----
10.2.2.
- ------
ARTICLE 2
---------
LEASED PROPERTY AND TERM
------------------------
2.1 Leased Property. Upon and subject to the terms and conditions
--- ---------------
hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord
all of Landlord's right, title and interest to use all of the following
(collectively, the "Leased Property"):
---------------
(a) those certain tracts, pieces and parcels of land, as more
particularly described in Exhibit E, attached hereto and made a part
---------
hereof (the "Land");
----
(b) all buildings, structures and other improvements of every
kind including, but not limited to, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and off-site),
parking garages, parking areas and roadways appurtenant to such
buildings and structures presently situated upon the Land
(collectively, the "Leased Improvements");
-------------------
(c) all easements, rights and appurtenances relating to the Land
and the Leased Improvements **[Sea View --, including any Ground
Leases]**;
(d) all equipment, machinery, fixtures, and other items of
property, now or hereafter permanently affixed to or incorporated into
the Leased Improvements, including, without limitation, all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment,
all of which, to the maximum extent permitted by law, are hereby
deemed by the parties hereto to constitute real estate, together with
all replacements, modifications, alterations and additions thereto,
but specifically
18
<PAGE>
excluding all items included within the category of
Tenant's Personal Property (collectively, the "Fixtures");
--------
(e) all machinery, equipment, furniture, furnishings, moveable
walls or partitions, trade fixtures or other personal property of any
kind or description used or useful in Tenant's business on or in the
Leased Improvements, and located on or in the Leased Improvements,
(including, but not limited to, computers, beds, bureaus,
chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases,
tables, rugs, bedspreads, shower curtains, linens, towels, facecloths,
bathmats, napkins, tablecloths, chinaware, glassware, flatware,
uniforms, carpeting, drapes, draperies, curtains, shades, venetian
blinds, screens, paintings, hangings, pictures, divans, couches,
luggage carts, luggage racks, stools, sofas, pillows, blankets,
foodcarts, cookware, dry cleaning facilities, dining room wagons, keys
or other entry systems, bars, bar fixtures, liquor and other drink
dispensers, icemakers, radios, television sets, video machines,
intercom and paging equipment, electric and electronic equipment,
dictating equipment, private telephone systems, communication
equipment, medical equipment, umbrellas and other shade equipment,
barbecues, potted plants, plants, laundry machines, tools, machinery,
switchboards, vacuum cleaning systems, floor brackets, electrical
signs, bulbs, bells, cabinets, lockers, shelving, spotlighting
equipment, dishwashers, garbage disposals, washers and dryers, boats,
motor scooters, bicycles, vehicles, exercise machines, sporting goods
and other recreational equipment, other customary hotel equipment and
other tangible property of every kind and nature whatsoever) and all
modifications, replacements, alterations and additions to such
personal property, except items, if any, included within the category
of Fixtures together with any interests Landlord may have in leases
with respect to all of the foregoing (collectively, the "Leased
------
Personal Property");
-----------------
(f) all of the Leased Intangible Property; and
(g) any and all leases of space (including any security deposits
held by Tenant or the Manager pursuant thereto) in the Leased
Improvements to tenants thereof.
2.2 Condition of Leased Property. Tenant acknowledges receipt and
--- ----------------------------
delivery of possession of the Leased Property and Tenant accepts the Leased
Property in its "as is" condition, **[Sea View -- except for asbestos containing
materials and lead as identified in Sections 7.1 and 7.2 of the Environmental
Report,]** and subject to the rights of parties in possession, the existing
state of title, including all covenants, conditions, restrictions, reservations,
mineral leases, concessions, easements and other matters of record or that are
visible or apparent on the Leased Property, all applicable Legal Requirements,
the lien of any financing instruments, mortgages and deeds of trust existing
prior to the Commencement Date or permitted by the terms of this Agreement, and
such other matters which would be disclosed by an inspection of the Leased
Property and the record title thereto or by an accurate survey thereof. TENANT
REPRESENTS THAT IT HAS INSPECTED THE LEASED PROPERTY AND ALL OF THE FOREGOING
AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY
REPRESENTATION OR WARRANTY OF LANDLORD
19
<PAGE>
OR LANDLORD'S AGENTS OR EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY
CLAIM OR ACTION AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED
PROPERTY. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN
RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR
USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO
THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.
2.3 Fixed Term. The term of this Agreement (the "Fixed Term") shall
--- ---------- ----------
commence on the Commencement Date and shall expire on the Expiration Date.
ARTICLE 3
---------
RENT
----
3.1 Rent. Tenant shall pay, in Dollars without offset, abatement,
--- ----
demand or deduction (unless otherwise expressly provided in this Agreement),
Minimum Rent and Participating Rent to Landlord and Additional Charges to the
party to whom such Additional Charges are payable, during the Term. All
payments to Landlord shall be made by wire transfer of immediately available
federal funds or by other means acceptable to Landlord in its sole discretion.
Rent for any partial Accounting Period shall be prorated on a per diem basis.
Minimum Rent and Participating Rent shall be adjusted (by amendment to this
Agreement) upon (i) the expansion of the number of rooms operated at the Hotel,
(ii) the increase in area of any meeting rooms or similar facilities located at
the Hotel, (iii) a material increase in the facilities available at the Hotel,
(iv) significant renovation of the Hotel to the extent same effectuates a
material repositioning of the Hotel, or (v) a Material Franchise Change.
3.1.1 Minimum Rent. For each Accounting Period or portion thereof,
----- ------------
Tenant shall pay Minimum Rent in arrears prior to 11:00 a.m. New York time
on the first Business Day of the next Accounting Period.
3.1.2 Participating Rent.
(a) Amount. For each Fiscal Quarter or portion thereof, Tenant
--- ------
shall pay in arrears prior to 11:00 a.m. New York time on or before
the twenty-fifth (25th) day of each Fiscal Quarter additional rent
("Participating Rent") with respect to such prior Fiscal Quarter or
- ------------------
portion thereof, pursuant to this Agreement, in an amount, not less
than zero, as set forth on Exhibit A. In calculating Participating
---------
Rent, Gross Revenues attributable to hotel packages or certificates
including, but not limited to, frequent traveler programs, gift
certificate programs, all inclusive packages or certificates, or other
similar programs or packages, shall be allocated to the respective
revenues categories in accordance with the Uniform System of Accounts.
The obligation to pay Participating Rent shall survive the expiration
or earlier termination of the Term, and a final reconciliation, taking
into account, among other relevant adjustments, any adjustments which
are
20
<PAGE>
accrued after such expiration or termination date but which
related to Participating Rent accrued prior to such termination date,
shall be made not later than sixty (60) days after such expiration or
termination date.
(b) Officers Certificate. An Officer's Certificate, in form and
--- --------------------
substance reasonably acceptable to Landlord, setting forth the
calculation of Participating Rent due and payable for the applicable
Fiscal Quarter shall be delivered to Landlord with each payment of
Participating Rent.
(c) Reconciliation of Participating Rent. On or before **[Omaha
--- ------------------------------------
-- 130]**[SeaView & LaGuardia -- 70] days from the commencement of
each year, commencing in 1999, Tenant shall deliver to Landlord an
Officer's Certificate, in form and substance reasonably acceptable to
Landlord, setting forth the Gross Revenues for the Leased Property for
such preceding Lease Year, together with an audit of Tenant's revenues
for the preceding Lease Year, conducted by a nationally recognized
firm of independent certified public accountants proposed by Tenant
and approved by Landlord, which approval shall not be unreasonably
withheld or delayed. In the event that Landlord and Tenant are unable
to agree on any aspect of the reconciliation of Participating Rent,
such matter shall be referred to arbitration as provided in Article
-------
23. If the annual Participating Rent for such preceding Lease Year as
shown in the Officer's Certificate exceeds the amount previously paid
with respect thereto by Tenant, Tenant shall pay such excess to
Landlord at such time as the Officer's Certificate is delivered,
together with interest at the Interest Rate, which interest shall
accrue from the date that such payment was due until the date that
such certificate is required to be delivered and, thereafter, such
interest shall accrue at the Overdue Rate, until the amount of such
difference shall be paid or otherwise discharged. If the annual
Participating Rent for such preceding Lease Year as shown in the
Officer's Certificate is less than the amount previously paid with
respect thereto by Tenant, provided that no Event of Default shall
have occurred and be continuing, Landlord shall grant Tenant a credit
against Participating Rent next coming due in the amount of such
difference, plus interest at the Interest Rate. If such credit cannot
be made because the Term has expired prior to application in full
thereof, provided no Event of Default has occurred and is continuing,
Landlord shall pay, within fifteen (15) Business Days of the date of
determination that such credit is due to Tenant, the unapplied balance
of such credit to Tenant, plus interest at the Interest Rate.
(d) Confirmation of Participating Rent. Tenant shall utilize, or
--- ----------------------------------
cause to be utilized, an accounting system for the Leased Property in
accordance with its usual and customary practices and in accordance
with GAAP and the Uniform System of Accounts, which will accurately
record all Gross Revenues and revenue categories specified in Exhibit
-------
A and Tenant shall retain, for at least seven (7) years after the
--
expiration of each Lease Year, or such longer period as may be
required by Applicable Laws, reasonably adequate records conforming to
such accounting system showing all Gross Revenues for such Lease Year.
Landlord, at its own expense except as provided hereinbelow, shall
have the right,
21
<PAGE>
exercisable by Notice to Tenant within three (3) years
after receipt of the applicable Officer's Certificate, by its
accountants or representatives to audit the information set forth in
the Officer's Certificate referred to in subparagraph (c) above and,
in connection with such audits, to examine Tenant's and the Manager's
books and records with respect thereto (including supporting data and
sales and excise tax returns). If any such audit discloses a
deficiency in the payment of Participating Rent, Tenant shall
forthwith pay to Landlord the amount of the deficiency, together with
interest at the Interest Rate, from the date such payment should have
been made to the date of payment thereof. If Landlord did not receive
at least ninety-five percent (95%) of the Participating Rent payable
with respect to such Lease Year, Tenant shall pay the reasonable cost
of such audit and examination. If any such audit discloses that
Tenant paid more Participating Rent for any Lease Year than was due
hereunder, provided no Event of Default has occurred and is
continuing, Landlord shall grant Tenant a credit as provided in
subparagraph (c) above. Any proprietary information obtained by
Landlord with respect to Tenant or the Manager pursuant to the
provisions of this Agreement shall be treated as confidential, except
that such information may be used, subject to appropriate
confidentiality safeguards, in any litigation between the parties and
except further that Landlord may disclose such information to its
prospective lenders, provided that Landlord shall direct and obtain
the agreement of such lenders to maintain such information as
confidential. The obligations of Tenant and Landlord contained in
this Section 3.1.2 shall survive the expiration or earlier termination
-------------
of this Agreement.
3.1.3 Additional Charges. In addition to the Minimum Rent and
----- ------------------
Participating Rent payable hereunder, Tenant shall pay to the appropriate
parties and discharge as and when due and payable the following
(collectively, "Additional Charges"):
------------------
(a) Impositions. Subject to Article 8 relating to permitted
--- ----------- ---------
contests, Tenant shall pay, or cause to be paid, all Impositions on
Tenant's Leased Property before any fine, penalty, interest or cost
(other than any opportunity cost as a result of a failure to take
advantage of any discount for early payment) may be added for non-
payment, such payments to be made directly to the taxing authorities
where feasible, and shall promptly, upon request, furnish to Landlord
copies of official receipts or other reasonably satisfactory proof
evidencing such payments. If any such Imposition may, at the option
of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition),
Tenant may exercise the option to pay the same (and any accrued
interest on the unpaid balance of such Imposition) in installments
and, in such event, shall pay such installments during the Term as the
same become due and before any fine, penalty, premium, further
interest or cost may be added thereto. Landlord, at its expense,
shall, to the extent required or permitted by Applicable Law, prepare
and file all tax returns and pay all taxes due in respect of real
estate taxes on the Leased Property, and all taxes due in respect of
Landlord's income, gross receipts, sales and use, single business,
transaction privilege, rent, ad valorem, franchise taxes and taxes on
its capital stock, and Tenant, at Landlord's expense, shall, to the
extent required or permitted by Applicable Laws,
22
<PAGE>
cause Manager to prepare and file all tax returns and pay all taxes
due in respect of real estate and personal property taxes, levies,
assessments and similar charges on or relating to the Leased Property,
and Tenant, at Tenant's sole cost and expense, shall, to the extent
required or permitted by Applicable Laws and regulations, prepare and
file all other tax returns and reports in respect of any Imposition as
may be required by Government Agencies. Provided no Event of Default
shall have occurred and be continuing, if any refund shall be due from
any taxing authority in respect of any Imposition paid by Tenant, the
same shall be paid over to or retained by Tenant. Landlord and Tenant
shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and
reports. In the event Government Agencies classify any property
covered by this Agreement as personal property, Tenant shall file all
personal property tax returns in such jurisdictions where it may
legally so file. Each party shall, to the extent it possesses the
same, provide the other, upon request, with cost and depreciation
records necessary for filing returns for any property so classified as
personal property. Where Landlord is legally required to file
personal property tax returns for property covered by this Agreement,
Landlord shall provide Tenant with copies of assessment notices in
sufficient time for Tenant to file a protest. All Impositions
assessed against such personal property shall be (irrespective of
whether Landlord or Tenant shall file the relevant return) paid by
Tenant not later than the last date on which the same may be made
without interest or penalty. Landlord shall give prompt Notice to
Tenant of all Impositions payable by Tenant hereunder of which
Landlord at any time has knowledge; provided, however, that Landlord's
-------- -------
failure to give any such notice shall in no way diminish Tenant's
obligation hereunder to pay such Impositions (except that Landlord
shall be responsible for any interest or penalties incurred as a
result of Landlord's failure promptly to forward the same).
(b) Utility Charges. Tenant shall pay or cause to be paid all
--- ---------------
charges for electricity, power, gas, oil, water and other utilities
used in connection with the Leased Property.
(c) Insurance Premiums. Tenant shall pay or cause to be paid all
--- ------------------
premiums for the insurance coverage required to be maintained pursuant
to Article 9.
---------
(d) Other Charges. Tenant shall pay or cause to be paid all
--- -------------
other amounts, liabilities and obligations and all amounts payable
under or with respect to the Management Agreement **[Sea View --, the
Ground Lease]** and all agreements to indemnify Landlord under
Sections 4.3.2 and 9.7.
----------------------
(e) Gross Operating Expenses. Tenant shall pay or cause to be
--- ------------------------
paid all Gross Operating Expenses in connection with the Leased
Property.
(f) Reimbursement for Additional Charges. If Tenant pays or
--- ------------------------------------
causes to be paid property taxes or similar or other Additional
Charges attributable to
23
<PAGE>
periods after the end of the Term, whether upon expiration or sooner
termination of this Agreement (other than termination by reason of an
Event of Default), Tenant may, within sixty (60) days after the end of
the Term, provide Notice to Landlord of its estimate of such amounts.
Landlord shall promptly reimburse Tenant for all payments of such
Additional Charges that are attributable to any period after the Term
of this Agreement.
If Tenant shall fail to pay any of the amounts payable under
paragraphs (a) through (e), above, Landlord may, upon ten (10) days notice to
Tenant (which notice may be oral), pay such charges, together with interest and
penalties due with respect thereto, and Tenant shall reimburse Landlord therefor
together with interest at the Interest Rate, upon demand, as Additional Charges.
3.1.4 CPI Adjustments. For each Lease Year during the Term beginning
----- ---------------
with the Lease Year commencing January 1999 the Minimum Rent then in
effect, the Annual Room Revenues First Break Point, the Annual Room
Revenues Second Break Point (each as defined in Exhibit A and together, the
---------
"Annual Room Revenues Break Points"), the Annual Food and Beverage Sales
---------------------------------
First Break Point, the Annual Food and Beverage Sales Second Break Point,
(each as defined in Exhibit A and together, the "Annual Food and Beverage
--------- ------------------------
Sales Break Points"), the Annual Telephone Revenues First Break Point, the
------------------
Annual Telephone Revenues Second Break Point (each as defined in Exhibit A
---------
and together, the "Annual Telephone Revenues Break Points"), the Annual
--------------------------------------
Other Income First Break Point, the Annual Other Income Second Break Point
(each as defined in Exhibit A and together, the "Annual Other Income Break
--------- -------------------------
Points), **[Sea View -- the Annual Golf Sales First Break Point, the Annual
------
Golf Sales Second Break Point (each as defined in Exhibit A and together,
---------
the "Annual Golf Sales Break Points")]**, then included in the Revenues
------------------------------
Computation shall be increased as follows:
(a) For the Lease Year commencing January 1, 1999, and for each
Lease Year thereafter during the Term, the CPI in effect for the month
of December immediately preceding the new Lease Year (the "Measurement
-----------
Date") shall be divided by the CPI in effect for the month of December
----
in the prior Fiscal Year;
(b) The new Minimum Rent for the Lease Year commencing January
1999 and for each Lease Year thereafter shall be the product of the
Minimum Rent in effect in the most recently ended Lease Year and the
quotient obtained under subparagraph (a) above;
(c) The new Annual Room Revenues Break Points in the Revenues
Computation for the Lease Year commencing January 1999 and for each
Lease Year thereafter shall be the product of the Annual Room Revenues
Break Points in effect in the most recently ended Lease Year and the
quotient obtained in subparagraph (a) above;
(d) The new Annual Food and Beverage Sales Break Points in the
Revenues Computation for the Lease Year commencing January 1999 and
for
24
<PAGE>
each Lease Year thereafter shall be the product of the Annual Food
and Beverage Sales Break Points in effect in the most recently ended
Lease Year and the quotient obtained in subparagraph (a) above;
(e) The new Annual Telephone Revenues Break Points in the
Revenues Computation for the Lease Year commencing January 1999 shall
be the product of the Annual Telephone Revenues Break Points in effect
for the most recently ended Lease Year and the quotient obtained in
subparagraph (a) above;
**[Sea View (f) The new Annual Golf Sales Break Points in the
Revenues Computation for the Lease Year commencing January 1999 and
for each Lease Year thereafter shall be the product of the Annual Golf
Sales Break Points in effect in the most recently ended Lease Year and
the quotient obtained in subparagraph (a) above;]** and
(g) The new Annual Other Income Break Points in the Revenues
Computation for the Lease Year commencing January 1999 and for each
Lease Year thereafter shall be the product of the Annual Other Income
Break Points in effect in the most recently ended Lease Year and the
quotient obtained in subparagraph (a) above.
Adjustments calculated as set forth above in the Minimum Rent, the
Annual Room Revenues Break Points, the Annual Food and Beverage Sales Break
Points, the Annual Telephone Revenues Break Points, **[Sea View -- the Annual
Golf Sales Break Points,]** and the Annual Other Income Break Points, shall be
effective on the first day of each Lease Year to which such adjusted amounts
apply. If Rent is paid prior to the determination of the amount of any
adjustment to Minimum Rent, the Annual Room Revenues Break Points, the Annual
Food and Beverage Sales Break Points, the Annual Telephone Revenues Break
Points, **[Sea View -- the Annual Golf Sales Break Points,]** and the Annual
Other Income Break Points applicable for such period, whether because of a delay
in the publication of the CPI for the Measurement Date or because of any other
reason, payment adjustments for any shortfall in or overpayment of Rent paid
shall be made with the first Minimum Rent and Participating Rent payments due
after the amount of the adjustments are determined. If (1) a significant change
is made in the number or nature (or both) of items used in determining the CPI,
or (2) the CPI shall be discontinued for any reason, the Bureau of Labor
Statistics shall be requested to furnish a new index comparable to the CPI,
together with information which will make possible a conversion to the new index
in computing the adjusted Minimum Rent, the Annual Room Revenues Break Points,
the Annual Food and Beverage Sales Break Points, the Annual Telephone Revenues
Break Points, **[the Annual Golf Sales Break Points,]** and the Annual Other
Income Break Points hereunder. If for any reason the Bureau of Labor Statistics
does not furnish such an index and such information, the parties will instead
mutually select, accept and use such other index or comparable statistics on the
cost of living in various cities that is computed and published by an agency of
the United States of America or a responsible financial periodical of recognized
authority. In no event shall the Minimum Rent, the Annual Room Revenues Break
Points, the Annual Food and Beverage Sales Break Points, the Annual Telephone
Revenue Break Points, **[the Annual Golf Sales Break Points,]** or the Annual
Other Income Break Points be reduced as a result of any changes in the CPI or
changes to the calculation of CPI.
25
<PAGE>
3.2 Late Payment of Rent, Etc. If any installment of Minimum Rent,
--------------------------
Participating Rent or Additional Charges (but only as to those Additional
Charges which are payable directly to Landlord) shall not be paid within ten
(10) days after its due date, Tenant shall pay Landlord, on demand, as
Additional Charges, a late charge (to the extent permitted by law) computed at
the Overdue Rate on the amount of such installment, from the due date of such
installment to the date of payment thereof. To the extent that Tenant pays any
Additional Charges directly to Landlord or any Hotel Mortgagee pursuant to any
requirement of this Agreement, Tenant shall be relieved of its obligation to pay
such Additional Charges to the Entity to which they would otherwise be due. If
any payments due from Landlord to Tenant shall not be paid within ten (10) days
after its due date, Landlord shall pay to Tenant, on demand, a late charge (to
the extent permitted by law) computed at the Interest Rate on the amount of such
installment from the due date of such installment to the date of payment
thereof.
In the event of any failure by Tenant to pay any Additional Charges
when due, except as expressly provided in Section 3.1.3(a), Tenant shall
----------------
promptly pay and discharge, as Additional Charges, every fine, penalty, interest
and cost which may be added for non-payment or late payment of such items.
Landlord shall have all legal, equitable and contractual rights, powers and
remedies provided either in this Agreement or by statute or otherwise in the
case of non-payment of the Additional Charges as in the case of non-payment of
the Minimum Rent and Participating Rent.
3.3 Net Lease. Subject to the terms hereof, the Rent shall be
---------
absolutely net to Landlord so that this Agreement shall yield to Landlord the
full amount of the installments or amounts of the Rent throughout the Term,
subject to any other provisions of this Agreement which expressly provide
otherwise, including those provisions for adjustment or abatement of such Rent.
3.4 No Termination, Abatement, Etc. Except as otherwise
------------------------------
specifically provided in this Agreement, each of Landlord and Tenant, to the
maximum extent permitted by law, shall remain bound by this Agreement in
accordance with its terms and shall not take any action without the consent of
the other to modify, surrender or terminate this Agreement. In addition, except
as otherwise expressly provided in this Agreement, Tenant shall not seek, or be
entitled to, any abatement, deduction, deferment or reduction of the Rent, or
set-off against the Rent, nor shall the respective obligations of Landlord and
Tenant be otherwise affected by reason of (a) any damage to or destruction of
the Leased Property or any portion thereof from whatever cause or any
Condemnation; (b) any claim which Tenant may have against Landlord by reason of
any default (other than a monetary default) or breach of any warranty by
Landlord under this Agreement or any other agreement between Landlord and
Tenant, or to which Landlord and Tenant are parties; (c) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceedings affecting Landlord or any assignee or transferee
of Landlord; or (d) for any other cause whether similar or dissimilar to any of
the foregoing (other than a monetary default by Landlord); provided, however,
-------- -------
that the foregoing shall not apply or be construed to restrict Tenant's rights
in the event of any act or omission by Landlord constituting gross negligence or
willful misconduct. Except as otherwise specifically provided in this
Agreement, Tenant hereby waives all rights arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law, to (a)
modify, surrender or terminate this Agreement or quit or surrender the Leased
Property or any portion thereof or (b)
26
<PAGE>
entitle Tenant to any abatement, reduction, suspension or deferment of the Rent
or other sums payable or other obligations to be performed by Tenant hereunder.
The obligations of each party hereunder shall be separate and independent
covenants and agreements, and the Rent and all other sums payable by Tenant
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Agreement. In any instance where, after the occurrence of an Event of Default,
Landlord retains funds which, but for the occurrence of such Event of Default,
would be payable to Tenant, Landlord shall refund such funds to Tenant to the
extent the amount thereof exceeds the amount necessary to compensate Landlord
for any cost, loss or damage incurred in connection with such Event of Default.
ARTICLE 4
---------
USE OF THE LEASED PROPERTY
--------------------------
4.1 Permitted Use.
- --- -------------
4.1.1 Permitted Use. Tenant shall, at all times during the term and at
----- -------------
any other time that Tenant shall be in possession of the Leased Property,
continuously use and operate, and cause the Manager to use and operate, the
Leased Property as a commercial hotel which meets or exceeds the Hotel
Standard and any uses incidental thereto. Subject to Section 16.3, Tenant
------------
shall not use (and shall cause the Manager not to use) the Leased Property
or any portion thereof for any other use without the prior written consent
of Landlord which may be withheld or granted in Landlord's sole and
absolute discretion. No use shall be made or permitted to be made of the
Leased Property and no acts shall be done thereon which will cause the
cancellation of any insurance policy covering the Leased Property or any
part thereof (unless another adequate policy is available), nor shall
Tenant sell or otherwise provide or permit to be kept, used or sold in or
about the Leased Property any article which may be prohibited by law or by
the standard form of fire insurance policies, or any other insurance
policies required to be carried hereunder, or fire underwriters'
regulations. Tenant shall, at its sole cost, comply (or cause the Manager
to comply) with all Insurance Requirements for which Tenant is responsible
pursuant to Articles 9 and 10 hereof. Tenant shall not take or omit to
-----------------
take (and Tenant shall cause the Manager not to take or omit to take) any
action, the taking or omission of which materially impairs the value or the
usefulness of the Leased Property or any part thereof for its Permitted Use
in accordance with the Franchise Agreement and the Hotel Standard.
4.1.2 Necessary Approvals. Tenant shall proceed with all due diligence
----- -------------------
and exercise best efforts to obtain and maintain, and shall cause the
Manager to obtain and maintain, all approvals and Licenses necessary to use
and operate, for its Permitted Use, the Leased Property and the Hotel
located thereon under applicable law, and, if requested by Landlord, shall
obtain, in Tenant's name, any liquor licenses required for the use and
operation of the Hotel.
27
<PAGE>
4.1.3 Lawful Use, Etc. Tenant shall not, and shall cause the Manager
----------------
not to, use or suffer or permit the use of the Leased Property or Tenant's
Personal Property, if any, for any unlawful purpose. Tenant shall not, and
shall cause the Manager not to, commit or suffer to be committed any waste
on the Leased Property, or in the Hotel, nor shall Tenant cause or permit
any unlawful nuisance thereon or therein. Except as expressly provided in
Section 8.1, Tenant shall not, and shall cause the Manager not to, suffer
-----------
nor permit the Leased Property, or any portion thereof, to be used in such
a manner as (a) might reasonably impair Landlord's title thereto or to any
portion thereof, or (b) may reasonably allow a claim or claims for adverse
usage or adverse possession by the public, as such, or of implied
dedication of the Leased Property or any portion thereof.
4.2 Compliance with Legal/Insurance Requirements, Etc. Subject to
-------------------------------------------------
the provisions of Articles 5, 6, 9 and 10 hereof, Tenant, at its sole expense,
-----------------------
shall (or shall cause the Manager to) comply with Legal Requirements and
Insurance Requirements in respect of the use, operation, maintenance, repair,
alteration and restoration of the Leased Property and with the terms and
conditions of any ground lease affecting the Leased Property, and procure,
maintain and comply with all appropriate licenses, and other authorizations and
agreements required for any use of the Leased Property and Tenant's Personal
Property, if any, then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.
4.3 Environmental Matters.
---------------------
4.3.1 Restriction on Use, Etc. During the Term and any other time that
------------------------
Tenant shall be in possession of the Leased Property, Tenant shall not (and
shall cause the Manager not to) store, spill upon, dispose of or transfer
to or from the Leased Property any Hazardous Substance, except in
compliance with all Applicable Laws. During the Term and any other time
that Tenant shall be in possession of the Leased Property, Tenant shall
maintain (and shall cause the Manager to maintain) the Leased Property at
all times free of any Hazardous Substance (except in compliance with all
Applicable Laws). Tenant shall promptly: (a) upon receipt of notice or
knowledge and shall cause the Manager upon receipt of notice or knowledge
promptly to, notify Landlord in writing of any material change in the
nature or extent of Hazardous Substances at the Leased Property, (b)
transmit to Landlord a copy of any "Community Right to Know" report which
is required to be filed by Tenant or the Manager with respect to the Leased
Property pursuant to any Applicable Law, (c) transmit to Landlord copies of
any citations, orders, notices or other governmental communications
received by Tenant or the Manager or their respective agents or
representatives with respect thereto (collectively, "Environmental
-------------
Notice"), which Environmental Notice requires a written response or any
action to be taken and/or if such Environmental Notice gives notice of
and/or presents a material risk of any material violation of any Applicable
Law and/or presents a material risk of any material cost, expense, loss or
damage (an "Environmental Obligation"), (d) observe and comply (and cause
------------------------
the Manager to observe and comply) with all Applicable Laws relating to the
use, maintenance and disposal of Hazardous Substances and all orders or
directives from any official, court or agency of competent jurisdiction
relating to the use or maintenance or requiring the removal, treatment,
containment or other disposition thereof, and (e) pay or otherwise dispose
of any fine, charge or Imposition related thereto, unless Tenant or the
Manager shall contest the same
28
<PAGE>
in good faith and by appropriate proceedings
and the right to use and the value of the Leased Property is not materially
and adversely affected thereby. If, at any time prior to the termination
of this Agreement, Hazardous Substances (other than those maintained in
accordance with Applicable Laws) are discovered on the Leased Property,
subject to the exceptions set forth in clauses (i) and (ii) of Section
-------
4.3.2 and subject to Tenant's and the Manager's right to contest any Claim
-----
with respect to the same in accordance with Article 8, Tenant shall take
---------
(and shall cause the Manager to take) all actions and incur any and all
expenses, as may be reasonably necessary and as may be required by any
Government Agency, (i) to clean up and remove from and about the Leased
Property all Hazardous Substances thereon, (ii) to contain and prevent any
further release or threat of release of Hazardous Substances on or about
the Leased Property and (iii) to use good faith efforts to eliminate any
further release or threat of release of Hazardous Substances on or about
the Leased Property.
4.3.2 Indemnification of Landlord. Tenant shall protect, indemnify and
----- ---------------------------
hold harmless Landlord, the REIT, Advisors, and each Hotel Mortgagee, their
trustees, officers, agents, employees and beneficiaries, and any of their
respective successors or assigns with respect to this Agreement
(collectively, the "Indemnitees" and, individually, an "Indemnitee") for,
----------- ----------
from and against any and all debts, liens, claims, causes of action,
administrative orders or notices, costs, fines, penalties or expenses
(including, without limitation, reasonable attorney's fees and expenses)
imposed upon, incurred by or asserted against any Indemnitee resulting
from, either directly or indirectly, the presence during the Term (or any
other time Tenant shall be in possession of the Leased Property) in, upon
or under the soil or ground water of the Leased Property or any properties
surrounding the Leased Property of any Hazardous Substances in violation of
any Applicable Law or otherwise except to the extent the same arise (i)
from the gross negligence or willful misconduct of Landlord or any other
Indemnitee or (ii) the existence thereof on the Leased Property prior to
the Commencement Date **[Sea View -- including, but not limited to,
asbestos containing materials and lead as set forth in Sections 7.1 and 7.2
of the Environmental Report.]** Tenant's duty herein includes, but is not
limited to, costs associated with personal injury or property damage claims
as a result of the presence prior to the expiration or sooner termination
of the Term and the surrender of the Leased Property to Landlord in
accordance with the terms of this Agreement of Hazardous Substances in,
upon or under the soil or ground water of the Leased Property in violation
of any Applicable Law. Upon Notice from Landlord and any other of the
Indemnitees, Tenant shall undertake the defense (with counsel reasonably
acceptable to Landlord), at Tenant's sole cost and expense, of any
indemnification duties set forth herein. Tenant shall, upon demand, pay to
Landlord, as an Additional Charge, any cost, expense, loss or damage
(including, without limitation, reasonable attorneys' fees) incurred by
Landlord and arising from a failure of Tenant strictly to observe and
perform the requirements of this Section 4.3, which amounts shall bear
-----------
interest from the date ten (10) days after written demand therefor is given
to Tenant until paid by Tenant to Landlord at the Overdue Rate.
4.3.3 Survival. The provisions of this Section 4.3 shall survive the
----- -------- -----------
expiration or sooner termination of this Agreement.
29
<PAGE>
ARTICLE 5
---------
MAINTENANCE AND REPAIRS
-----------------------
5.1 Maintenance and Repair.
----------------------
5.1.1 Tenant's Obligations. Tenant shall, at its sole cost and expense,
----- --------------------
or shall cause the Manager to, keep the Leased Property and all private
roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal
Property, if any) in good order and repair, subject to ordinary wear and
tear (whether or not the need for such repairs occurs as a result of
Tenant's or the Manager's use, any prior use, the elements or the age of
the Leased Property or Tenant's Personal Property, if any, or any portion
thereof), and shall promptly make (or cause the Manager to make) all
necessary and appropriate repairs and replacements thereto of every kind
and nature, whether interior or exterior, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior
to the commencement of the Term (concealed or otherwise); provided,
however, Tenant shall not be obligated to make Capital Expenditures with
respect to the Leased Property. All repairs shall be made in a good,
workmanlike manner, consistent with the Manager's and industry standards
for like hotels in like locales, in accordance with all Applicable Laws
relating to any such work. Tenant shall not take or omit to take (and
shall cause the Manager not to take or omit to take) any action, the taking
or omission of which would materially and adversely impair the value or the
usefulness of the Leased Property or any part thereof for its Permitted Use
in accordance with the Franchise Agreement, the Hotel Standard **[Sea View
--, and the Ground Lease]**. Tenant's obligations under this Section 5.1.1
-------------
shall be limited in the event of any casualty or Condemnation as set forth
in Sections 10.2 and 11.2 and Tenant's obligations with respect to
----------------------
Hazardous Substances are as set forth in Section 4.3.
-----------
5.1.2 Landlord's Obligations.
----------------------
(a) Except as otherwise expressly provided in Sections 5.1.2(b)
-----------------
and 10.2.1 **[Sea View --, or as otherwise required under the Ground
----------
Lease,]** Landlord shall not, under any circumstances, be required to
build or rebuild any improvement on the Leased Property, or to make
any repairs (except for structural repairs), replacements,
alterations, restorations or renewals of any nature or description to
the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect
thereto, or to maintain the Leased Property in any way. Tenant hereby
waives, to the maximum extent permitted by law, the right to make
repairs at the expense of Landlord pursuant to any law in effect on
the date hereof or hereafter enacted. Landlord shall have the right
to give, record and post, as appropriate, notices of nonresponsibility
under any mechanic's lien laws now or hereafter existing.
(b) If Tenant is required to make any expenditure in connection
with any Capital Repair which is required as a result of a fire, any
other casualty or any other events, circumstances or conditions which
threaten the safety or physical well-being of the Hotel's guests or
employees or which involve the risk of
30
<PAGE>
material property damage or material loss to the Hotel or which are
required to prevent a material and detrimental economic loss to the
Hotel (collectively, "Emergency Repairs") and the amount of such
-----------------
expenditures exceeds the amount on deposit in the Reserve Fund, Tenant
may, at its election, give Landlord Notice thereof, which Notice shall
set forth, in reasonable detail, the nature of the required Emergency
Repair, the estimated cost thereof and such other information with
respect thereto as Landlord may reasonably require. Provided that no
Event of Default shall have occurred and be continuing and Tenant
shall otherwise comply with the applicable provisions of Article 6,
----------
Landlord shall, within five (5) Business Days after such Notice,
subject to and in accordance with the applicable provisions of Article
-------
6, disburse or, if costs for Emergency Repairs have already been
-
incurred by Tenant, reimburse any funds necessary to complete
Emergency Repairs which are in excess of the amount on deposit in the
Reserve Fund to Tenant (or, if Tenant shall so elect, directly to the
Manager or any other Person performing the required work).
5.1.3 Nonresponsibility of Landlord, Etc. All materialmen, contractors,
----- -----------------------------------
artisans, mechanics and laborers and other persons contracting with Tenant
with respect to the Leased Property, or any part thereof, are hereby
charged with notice that liens on the Leased Property or on Landlord's
interest therein are expressly prohibited and that they must look solely to
Tenant to secure payment for any work done or material furnished by Tenant,
the Manager or for any other purpose during the term of this Agreement.
Nothing contained in this Agreement shall be deemed or construed in any way
as constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any contractor, subcontractor, laborer or
materialmen for the performance of any labor or the furnishing of any
materials for any alteration, addition, improvement or repair to the Leased
Property or any part thereof or as giving Tenant any right, power or
authority to contract for or permit the rendering of any services or the
furnishing of any materials that would give rise to the filing of any lien
against the Leased Property or any part thereof nor to subject Landlord's
estate in the Leased Property or any part thereof to liability under any
mechanic's lien law in any way, it being expressly understood that
Landlord's estate shall not be subject to any such liability.
5.2 Tenant's Personal Property. Subject to the terms of this
--- --------------------------
Agreement, Tenant shall provide and maintain throughout the Term all such
Tenant's Personal Property as shall be necessary in order to operate in
compliance with applicable Legal Requirements and Insurance Requirements and
otherwise in accordance with customary practice in the industry for the
Permitted Use and all of such Personal Property shall, upon the expiration or
earlier termination of this Agreement, become the property of Landlord. If,
from and after the Commencement Date, Tenant acquires an interest in any item of
tangible personal property on, or in connection with, the Leased Property which
belongs to any Person other than Tenant, Tenant shall require the agreements,
permitting such use to provide that Landlord or its designee may assume Tenant's
rights and obligations under such agreement upon the termination of this
Agreement and the assumption of management or operation of the Hotel by Landlord
or its designee. Upon termination of the Term, Tenant shall deliver all of
Tenant's Personal Property free of all liens and/or encumbrances to Landlord.
31
<PAGE>
5.3 Surrender. Upon the expiration or sooner termination of this
--- ---------
Agreement, Tenant shall vacate, surrender, and deliver to Landlord the
following: (i) the Leased Property, (ii) the Tenant's Personal Property, (iii)
the Leased Personal Property, (iv) the Minimum Inventory, and (v) the Minimum
Working Capital. Items (i) through (iv) shall be delivered in substantially the
same condition as such items were in on the Commencement Date, subject to
ordinary wear and tear and Capital Expenditures for which Landlord is
responsible, and except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Agreement (and casualty and
Condemnation, in the event that this Agreement is terminated following a
casualty or total Condemnation in accordance with Article 10 or Article 11). In
---------- ----------
addition, upon the expiration or earlier termination of this Agreement, Tenant
shall, at Landlord's sole cost and expense, use its good faith efforts to
transfer to and cooperate with Landlord or Landlord's nominee in connection with
the processing of all applications for licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental Entities which may be necessary for the use
and operation of the Hotel as then operated. After the Expiration Date or the
earlier termination of this Agreement, Landlord agrees to honor all reservations
and bookings made by Tenant in accordance with the Hotel Standard and reasonable
commercial practice.
5.4 Management Agreement. Landlord shall have the right to approve
--- --------------------
any replacement Manager or replacement Management Agreement, in its sole and
absolute discretion. Tenant shall, at its sole cost and expense, perform all of
the obligations of "Owner" under the Management Agreement. Tenant or Manager
shall be the employer with respect to any and all employees located at the
Leased Property. Tenant shall, at all times, direct the Manager to perform all
of the Manager's obligations under the Management Agreement. Tenant shall not
amend or modify the Management Agreement without Landlord's prior written
consent, which consent shall not unreasonably be withheld, delayed or
conditioned. Tenant shall not take any action, grant any consent, or, except as
provided in the Management Agreement, permit any action under the Management
Agreement without the prior written consent of Landlord, which consent will not
be unreasonably withheld. Except as provided in the Management Agreement,
Tenant shall not, without the Landlord's written approval, which approval may be
withheld or granted in Landlord's sole and absolute discretion, agree to: (i)
any change in the Manager; (ii) any change in the Management Agreement; (iii)
terminate the Management Agreement; or (iv) permit the Manager to assign the
Management Agreement. If Landlord shall perform any obligations of "Owner"
under the Management Agreement (which Landlord may do subject to Section 12.5),
------------
the cost of such performance shall be payable, upon demand, by Tenant to
Landlord with interest accruing from the date which is ten (10) days after the
demand date at the Overdue Rate and Landlord shall have the same rights and
remedies for failure to pay such costs on demand as for Tenant's failure to pay
Minimum Rent.
5.5 Intentionally Deleted.
5.6 Minimum Inventory. On the Commencement Date and thereafter
--- -----------------
during the Term, Tenant shall, at its sole cost and expense, furnish and
maintain at the Leased Property all Inventory necessary or desirable for the
operation of the Leased Property in accordance with the provisions of this
Agreement, the Franchise Agreement, the Hotel Standard and reasonable commercial
practice. On the Commencement Date and at the commencement of each calendar
year, Tenant shall submit to Landlord a detailed list of all Inventory. Tenant,
at its sole cost and
32
<PAGE>
expense, shall repair, maintain and replace the Inventory so that the greater of
(x) the Minimum Inventory, or (y) the remaining Inventory, is delivered to
Landlord on the date of expiration or the earlier termination of this Agreement.
ARTICLE 6
---------
IMPROVEMENTS, ETC.
------------------
6.1 Improvements to the Leased Property. Except as provided in
--- -----------------------------------
the Annual Budget, or unless otherwise provided in the Management Agreement,
Tenant shall not make, construct or install (and shall cause the Manager not to
construct or install) any Capital Repairs without, in each instance, obtaining
Landlord's prior written consent, which consent shall not be unreasonably
withheld, delayed or conditioned provided that (a) construction or installation
of the same would not adversely affect or violate any Legal Requirement,
Insurance Requirement, the Franchise Agreement **[Sea View --, or the Ground
Lease]** applicable to the Leased Property; (b) such Capital Repairs will not
affect the structural integrity of the Leased Improvements or adversely affect
any of the mechanical or electrical systems of the Leased Improvements; (c) such
Capital Repairs are to be completed prior to the expiration of the Term in a
good and workmanlike manner; (d) such Capital Repairs do not reduce the value of
the Leased Improvements; (e) no Event of Default has occurred and is existing;
and (f) Landlord shall have received an Officer's Certificate certifying as to
the satisfaction of the conditions set out in clauses (a) through (e) above;
provided, however, that no such consent shall be required in the event an
- -------- -------
Emergency Repair is required. No Capital Repair shall be made which would tie
in or connect any Leased Improvement with any other improvements on property
adjacent to the Leased Property (and not part of the Land) including, without
limitation, tie-ins of buildings or other structures or utilities without
Landlord's prior written consent, which consent may be withheld or granted in
Landlord's sole and absolute discretion. Tenant shall not finance, and shall
cause the Manager not to finance, the cost of any construction of such
improvement by the granting of a lien on or security interest in the Leased
Property or such improvement, or Tenant's interest therein, without the prior
written consent of Landlord, which consent may be withheld by Landlord in
Landlord's sole and absolute discretion. Any such improvements shall, upon the
expiration or sooner termination of this Agreement, remain or pass to and become
the property of Landlord, free and clear of all encumbrances other than
Permitted Encumbrances.
6.2 Salvage. Any sums received from the sale of any and all
--- -------
materials or property, real or personal (collectively "Salvage"), shall be
-------
deposited into the Reserve Fund.
6.3 Reserve Fund. Tenant or Manager shall establish a reserve
--- ------------
account (the "Reserve Fund") in accordance with the terms of the Management
Agreement. Such funds shall be made available by Landlord for Capital
Expenditures set forth in the Annual Budget, Emergency Repairs, and to fund the
replacement or refurbishment of FF&E; provided, however, that Tenant shall not
use any sums in the Reserve Fund to purchase property (other than "real
property" within the meaning of Treasury Regulations Section 1.856 3(d)) to the
extent that doing so would cause the Landlord to recognize income other than
"rents from real property" as defined in Section 856(d) of the Code. All
Capital Repairs shall be located on the Land and shall be owned
33
<PAGE>
by Landlord subject to the provisions of this Agreement. Tenant may not make any
Capital Repair which will increase the gross square footage of the Leased
Improvements without the prior written consent of Landlord, which consent may be
withheld or granted in Landlord's sole and absolute discretion. Upon the
Expiration Date or earlier termination of this Agreement, any funds remaining in
the Reserve Fund shall remain the property of Landlord.
ARTICLE 7
---------
LIENS
-----
7.1 Liens. Subject to Article 8, Tenant shall not, directly or
--- ----- ---------
indirectly, create or allow to remain and shall promptly discharge, at its
expense, any lien, encumbrance, attachment, title retention agreement or claim
upon the Leased Property or Tenant's leasehold interest therein or any
attachment, levy, claim or encumbrance in respect of the Rent, other than (a)
Permitted Encumbrances, (b) restrictions, liens and other encumbrances which are
consented to in writing by Landlord, (c) liens for those taxes of Landlord which
Tenant is not required to pay hereunder, (d) subleases permitted by Article 16,
----------
(e) liens for Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (i) the same are not yet due and payable, or (ii) are
being contested in accordance with Article 8, (f) liens of mechanics, laborers,
---------
materialmen, suppliers or vendors incurred in the ordinary course of business
that are not yet due and payable or are for sums that are being contested in
accordance with Article 8, (g) any Hotel Mortgages or other liens which are the
---------
responsibility of Landlord pursuant to the provisions of Article 20, (h)
----------
Landlord Liens and (i) sewer and public utility charges incurred in the ordinary
course of business, so long as (x) the same are not yet due and payable, or (y)
are being contested in accordance with Article 8.
---------
7.2 Landlord's Lien. In addition to any statutory landlord's lien
--- ---------------
and in order to secure payment of the Rent and all other sums payable hereunder
by Tenant, and to secure payment of any loss, cost or damage which Landlord may
suffer by reason of Tenant's breach of this Agreement, Tenant hereby grants unto
Landlord a security interest in and an express contractual lien upon Tenant's
Personal Property, and all ledger sheets, files, records, documents and
instruments (including, without limitation, computer programs, tapes and related
electronic data processing) relating to the operation of the Leased Property
(the "Records") and all proceeds therefrom, subject to any Permitted
-------
Encumbrances; and such Tenant's Personal Property shall not be removed from the
Leased Property at any time when a Default or an Event of Default has occurred
and is continuing. Upon Landlord's request, Tenant shall execute and deliver to
Landlord financing statements in form sufficient to perfect the security
interest of Landlord in Tenant's Personal Property and the proceeds thereof in
accordance with the provisions of the applicable laws. Tenant hereby grants
Landlord an irrevocable limited power of attorney, coupled with an interest, to
execute all such financing statements in Tenant's name, place and stead. The
security interest herein granted is in addition to any statutory lien for the
Rent.
34
<PAGE>
ARTICLE 8
---------
PERMITTED CONTESTS
------------------
8.1 Permitted Contests. Subject to and in accordance with the
--- ------------------
requirements of any Hotel Mortgage, Tenant shall have the right to contest the
amount or validity of any Imposition, Legal Requirement, Insurance Requirement,
Environmental Obligation, lien, attachment, levy, encumbrance, charge or claim
(collectively, "Claims") as to the Leased Property, by appropriate legal
------
proceedings, conducted in good faith and with due diligence, provided that (a)
the foregoing shall in no way be construed as relieving, modifying or extending
Tenant's obligation to pay any Claims as finally determined, (b) such contest
shall not cause Landlord or Tenant to be in default under any mortgage, deed of
trust **[Sea View -- or Ground Lease,]** encumbering the Leased Property or any
interest therein or result in or reasonably be expected to result in a lien
attaching to the Leased Property, (c) no part of the Leased Property nor any
Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment
or loss, and (d) Tenant shall indemnify and hold harmless Landlord from and
against any cost, claim, damage, penalty or reasonable expense, including,
without limitation, reasonable attorneys' fees, incurred by Landlord in
connection therewith) or as a result thereof. Landlord agrees to join in any
such proceedings if required legally to prosecute such contest, provided that
Landlord shall not thereby be subjected to any liability therefor (including,
without limitation, for the payment of any costs or expenses in connection
therewith) unless Tenant agrees by agreement in form and substance reasonably
satisfactory to Landlord, to assume and indemnify Landlord with respect to the
same. Tenant shall be entitled to any refund of any Claims and such charges and
penalties or interest thereon which have been paid by Tenant or paid by Landlord
to the extent that Landlord has been fully reimbursed by Tenant. If Tenant
shall fail (x) to pay or cause to be paid any Claims when finally determined,
(y) to provide reasonable security therefor, or (z) to prosecute or cause to be
prosecuted any such contest diligently and in good faith, Landlord may, upon
reasonable notice to Tenant (which notice may be oral), pay such charges,
together with interest and penalties due with respect thereto, and Tenant shall
reimburse Landlord therefor, upon demand, as Additional Charges.
ARTICLE 9
---------
INSURANCE AND INDEMNIFICATION
- -----------------------------
9.1 General Insurance Requirements. (i) Tenant shall, or shall
--- ------------------------------
cause Manager to, subject to Landlord's prior approval, not to be unreasonably
withheld, at Tenant's sole cost and expense, at all times during the Term keep
the Leased Property and all property located therein or thereon, insured against
the risks and in the amounts as follows and shall maintain the following
insurance on, or with respect to, the Leased Property:
(a) Commercial general liability insurance, including bodily
injury and property damage (on an occurrence basis and on a 1994 1SO
CGL form or on a form otherwise maintained by similarly situated
tenants, including, without limitation, liquor liability exposure,
broad form contractual liability, independent
35
<PAGE>
contractor's hazard and completed operations coverage) in an amount
not less than **[Sea View-- Fifty Million Dollars
($50,000,000.00)]**[Others -- Ten Million Dollars ($10,000,000)]** per
occurrence which limit can be obtained through a combination of
primary and umbrella coverage;
(b) Worker's compensation insurance or other similar insurance
which may be required by Government Agencies or Legal Requirements;
(c) Such additional insurance as may be reasonably required, from
time to time, by Landlord, any Hotel Mortgagee **[Sea View --, or
under the Ground Lease,]** and which is customarily carried by
comparable lodging properties in the area;
(d) Innkeeper's legal liability insurance covering property of
guests while on the Leased Property for which Landlord is legally
responsible with a limit of not less than $1,000 in any one occurrence
or $25,000 annual aggregate; and
(e) Safe deposit box legal liability insurance covering property
of guests while in a safe deposit box on the Leased Property for which
Landlord is legally responsible with a limit of not less than $25,000
in any one occurrence.
(f) Comprehensive form vehicle liability insurance for owned,
non-owned, and hired vehicles used in connection with the operation of
the Leased Property, in the amount of $10,000,000.00.
(ii) **[LaGuardia--Landlord shall]** Tenant shall, or shall cause
Manager to, at Landlord's sole cost and expense, at all times during
the Term keep the Leased Property and all property located therein or
thereon, insured against the risks and in the amounts as follows and
shall maintain the following insurance:
(a) "All-risk" property insurance, including insurance against
loss or damage by fire, vandalism and malicious mischief, explosion of
steamboilers, earthquake and hurricane damage, pressure vessels or
other similar apparatus, now or hereafter installed in the Hotel
located at the Leased Property, with equivalent coverage as that
provided by the usual extended coverage endorsements, in an amount
equal to one hundred (100%) percent of the then full Replacement Cost
thereof;
(b) Business interruption and blanket earnings plus extra expense
under a rental value insurance policy or endorsement covering risk of
loss by reason of any hazard covered under the insurance required
under this Section 9.1 in such amounts as may be customary for
comparable properties in the area and in an amount sufficient to
prevent Landlord or Tenant from becoming a co-insurer but in any event
for not less than twelve (12) months of Gross Revenues; and
36
<PAGE>
(c) Flood (if the Leased Property is located in a federally
designated flood zone) and such other hazards and in such amounts as
may be customary for comparable properties in the area.
9.2 Replacement Cost. "Replacement Cost" as used herein, shall mean
--- ---------------- ----------------
the actual replacement cost of the property requiring replacement from time to
time, including an increased cost of construction endorsement, less exclusions
provided in the standard form of fire insurance policy.
9.3 Waiver of Subrogation. Landlord and Tenant agree that (insofar
--- ---------------------
as and to the extent that such agreement may be effective without invalidating
or making it impossible to secure insurance coverage from responsible insurance
companies doing business in the State) with respect to any property loss which
is covered by insurance then being carried by Landlord or Tenant, respectively,
the party carrying such insurance and suffering said loss releases the other of
and from any and all claims with respect to such loss; and they further agree
that their respective insurance companies shall have no right of subrogation
against the other on account thereof, even though extra premium may result
therefrom. In the event that any extra premium is payable by Tenant as a result
of this provision, Landlord shall not be liable for reimbursement to Tenant for
such extra premium.
9.4 Form Satisfactory, Etc. All insurance policies and endorsements
--- ----------------------
required pursuant to this Article 9 shall be fully paid for, nonassessable and,
---------
except for umbrella and flood coverage, be issued by insurance carriers
authorized to do business in the State, having a rating of no less than A-:XI in
Best's latest rating guide and otherwise satisfactory under any Hotel Mortgage
**[Sea View -- or Ground Lease]**. No policy described in Sections 9.1(i)(a),
-------------------
(ii)(a)-(c) and (iii) shall include a deductible in excess of Twenty Five
- ---------------------
Thousand Dollars ($25,000) (provided, however, that insurance for earthquake and
hurricane damage may include such reasonable deductibles as are consistent with
normal industry practice and which are otherwise acceptable to Landlord) and,
with the exception of the insurance described in Section 9.1(i)(b), shall name
-----------------
Landlord and any Hotel Mortgagee as additional insureds, as their interests may
appear. All loss adjustments shall be payable as provided in Article 10.
----------
Tenant shall cause all insurance premiums to be paid and shall make available
such policies and deliver certificates thereof to Landlord prior to their
effective date (and, with respect to any renewal policy, prior to the expiration
of the existing policy). All such policies shall provide Landlord (and any
Hotel Mortgagee if required by the same) thirty (30) days prior written notice
of any material change or cancellation of such policy. In the event Tenant
shall fail to effect such insurance as herein required, to pay the premiums
therefor or to deliver such policies or certificates to Landlord or any Hotel
Mortgagee at the times required, Landlord shall have the right, but not the
obligation, subject to the provisions of Section 12.5, to acquire such insurance
------------
and pay the premiums therefor, which amounts shall be payable to Landlord, upon
demand, as Additional Charges, together with interest accrued thereon at the
Overdue Rate from the date such payment is made until (but excluding) the date
repaid.
9.5 Blanket Policy. Notwithstanding anything to the contrary
--- --------------
contained in this Article 9, Landlord's or Tenant's obligation to maintain the
---------
insurance herein required may be brought within the coverage of a so-called
blanket policy or policies of insurance carried and maintained by Landlord,
Tenant or the Manager, as applicable, provided that (a) the coverage
37
<PAGE>
thereby afforded will not be reduced or diminished from that which would exist
under a separate policy meeting all other requirements of this Agreement, and
(b) the requirements of this Article 9 are otherwise satisfied.
---------
9.6 No Separate Insurance. Tenant shall not take out separate
--- ---------------------
insurance, concurrent in form or contributing in the event of loss with that
required by this Article 9, or increase the amount of any insurance by securing
---------
an additional policy or additional policies, if such separate insurance would
reduce the insurance protection afforded Landlord pursuant to the terms of this
Article 9. In the event Tenant shall take out any such separate insurance or
- ---------
increase any of the amounts of the then existing insurance, Tenant shall give
Landlord prompt Notice thereof.
9.7 Indemnification of Landlord. Subject to the provision of
--- ---------------------------
Section 9.3, Notwithstanding the existence of any insurance provided for herein
- -----------
and without regard to the policy limits of any such insurance, Tenant, or
Tenant's Parent or Affiliate pursuant to the Guaranty, shall protect, indemnify
and hold harmless Landlord, the REIT and Advisors, for, from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and reasonable expenses (including, without limitation, reasonable attorneys'
fees), to the maximum extent permitted by law, imposed upon or incurred by or
asserted against Landlord, the REIT or Advisors, by reason of: (a) any accident,
injury to or death of persons or loss of or damage to property occurring on or
about the Leased Property or adjoining sidewalks or rights of way; (b) any past,
present or future use, misuse, non-use, condition, management, maintenance or
repair by Tenant or anyone claiming under Tenant of the Leased Property or
Tenant's Personal Property or any litigation, proceeding or claim by
governmental entities or other third parties to which Landlord, the REIT or
Advisors, is made a party or participant relating to the Leased Property, or
Tenant's Personal Property or such use, misuse, non-use, condition, management,
maintenance, or repair thereof including failure to perform obligations (other
than Condemnation proceedings) to which Landlord, the REIT or Advisors, is made
a party; (c) any Impositions that are the obligations of Tenant to pay pursuant
to the applicable provisions of this Agreement; (d) the imposition of any "dram
act" or similar law relating to liability resulting from the service of wine,
beer, liquor or other alcoholic beverages; and (e) any failure on the part of
Tenant or anyone claiming under Tenant to perform or comply with any of the
terms of this Agreement or the Participating Leases unless any such liability,
obligation, claim, damage, penalty, cause of action, cost or reasonable
attorneys' fees were incurred as a result of Landlord's, the REIT's or
Advisors', gross negligence or willful misconduct; provided, however, for so
long as Landlord reasonably determines that its interests are being sufficiently
protected and defended by the insurers, pursuant to the policies of insurance
required to be maintained by Tenant pursuant to this Article 9, Tenant shall not
---------
be obligated to defend Landlord in any such action; provided, further, however,
if at any time Landlord reasonably determines that its interests are not being
sufficiently protected and defended, then Tenant shall immediately comply with
all of the obligations imposed pursuant to this Section 9.7. Except as
-----------
expressly provided herein, Tenant, at its expense, shall contest, resist and
defend any such claim, action or proceeding asserted or instituted against
Landlord, the REIT or Advisors, with counsel reasonably acceptable to Landlord,
the REIT or Advisors, or may compromise or otherwise dispose of the same within
the policy limits afforded by such insurance, without Landlord's, the REIT's or
Advisors', prior consent, unless such compromise would have a material adverse
effect on Landlord, or would otherwise prejudice Landlord's rights thereunder.
The obligations
38
<PAGE>
of Tenant under this Section 9.7 are in addition to the
-----------
obligations set forth in Section 4.3 and shall survive the termination of this
-----------
Agreement.
9.8 Increase in Limits. If Landlord at any time reasonably deems
--- ------------------
the limits of the personal injury or property damage under the commercial public
liability insurance then carried by Tenant to be insufficient, Landlord and
Tenant shall endeavor in good faith to agree on the proper and reasonable limits
for such insurance to be carried and such insurance shall thereafter be carried
with the limits thus agreed on until further change pursuant to the provisions
of this Section 9.8. If the parties fail to agree on such limits, the matter
-----------
shall be referred to arbitration as provided for in Article 23.
----------
ARTICLE 10
----------
CASUALTY
--------
10.1 Insurance Proceeds. Except as provided in the last clause of
---- ------------------
this sentence and except as provided in Section 10.4, all proceeds payable by
------------
reason of any loss or damage to the Leased Property, or any portion thereof, and
insured under any policy of insurance required by Article 9 shall be paid
---------
directly to Landlord. If Tenant is required to reconstruct or repair the Leased
Property as provided herein, such proceeds as are made available by any Hotel
Mortgagee shall be paid out by Landlord from time to time for the costs of
reconstruction or repair of the Leased Property necessitated by such damage or
destruction, subject to and in accordance with the provisions of Section 10.2.2.
--------------
In the event that the provisions of Section 10.2.1 are applicable, the insurance
--------------
proceeds shall be retained by the party entitled thereto pursuant to Section
-------
10.2.1. All salvage resulting from any risk covered by insurance shall belong
- ------
to Landlord, provided any rights to the same have been waived by the insurer.
10.2 Damage or Destruction.
---- ---------------------
10.2.1 Damage or Destruction of Leased Property. In the event (a) the
------ ----------------------------------------
Leased Property is damaged by fire, explosion or other casualty insured
under the fire and extended coverage insurance policy required hereunder
(an "Insured Casualty") to the extent of twenty-five percent (25%) or more
----------------
of the insurable value thereof immediately preceding the casualty, (b) the
Leased Property is damaged by a casualty or occurrence other than an
Insured Casualty, (c) such damage occurs at anytime within the last six (6)
months of the Term, (d) the Leased Property or any portion thereof is
damaged by fire, explosion or other casualty and the Leased Property cannot
be repaired, rebuilt or restored to the same condition under the terms of
the Franchise Agreement, under any Legal Requirements or other governmental
order or under any other agreement to which the Leased Property is subject
or (e) a casualty occurs to a portion of the Hotel which renders the Hotel
Unsuitable for Its Permitted Use (a "Prohibited Casualty"), then in such
-------------------
event Landlord or Tenant may terminate this Agreement by giving written
notice of termination to the other party within thirty (30) days after the
happening of the event causing the damage. In the event the damage is not
extensive enough to give rise to Landlord's option to terminate this
Agreement, a Prohibited Casualty has not occurred, or
39
<PAGE>
Landlord does not elect to terminate this Agreement, Landlord, at
Landlord's sole cost and expense shall promptly repair and replace the
Leased Property to the condition existing immediately preceding such fire,
explosion or other casualty. During any period of reconstruction or repair
of the Leased Property, (i) Landlord shall make any business interruption
insurance proceeds available to Tenant to pay necessary operating expenses
and Rent with respect to the Leased Property, (ii) Tenant shall operate its
business in the Leased Property to the extent practicable, and (iii)
Minimum Rent payable under this Agreement by Tenant shall be abated during
the period of such repair and restoration to the extent the Leased Property
is not tenantable.
10.2.2 Disbursement of Proceeds. In the event Tenant undertakes to
------ ------------------------
restore the Leased Property after an Insured Casualty or, if this Agreement
has not been terminated, a Prohibited Casualty, Tenant shall (or shall
cause the Manager to) commence promptly and continue diligently to perform
the repair and restoration of the Leased Property (hereinafter called the
"Work"), so as to restore the Leased Property in compliance with all Legal
----
Requirements and so that the Leased Property shall be, to the extent
practicable, substantially equivalent in value and general utility to its
general utility and value immediately prior to such damage or destruction.
Subject to the terms hereof, Landlord shall advance the insurance proceeds
to Tenant regularly during the repair and restoration period so as to
permit payment for the cost of any such restoration and repair. Any such
advances shall be made not more than monthly within ten (10) Business Days
after Tenant submits to Landlord a written requisition and substantiation
therefor containing such information and in such form as may be reasonably
required by Landlord. Landlord may, at its option, condition advancement
of said insurance proceeds and other amounts on (a) the absence of any
Event of Default, (b) its approval of plans and specifications of an
architect satisfactory to Landlord (which approval shall not be
unreasonably withheld or delayed), (c) general contractors' estimates, (d)
architect's certificates, (e) unconditional lien waivers of general
contractors, if available, (f) evidence of approval by all governmental
authorities and other regulatory bodies whose approval is required and (g)
such other certificates as Landlord may, from time to time, reasonably
require. Landlord's obligation to disburse insurance proceeds under this
Article 10 shall be subject to the release of such proceeds by any Hotel
----------
Mortgagee to Landlord. Notwithstanding anything contained in this
Agreement, in the event that any Hotel Mortgagee does not release insurance
proceeds to Landlord, unless Landlord determines, in its sole and absolute
discretion, to make monies in the amount of such proceeds available to
Tenant for repair or restoration of the Leased Property, Tenant shall have
no obligation to repair or restore the Leased Property. If a Hotel
Mortgagee or Landlord releases only a portion of insurance proceeds to
Tenant and Landlord does not, in its sole and absolute discretion, make
any shortfall in the amount of insurance proceeds released by a Hotel
Mortgagee available to Tenant for repair or restoration of the Leased
Property, Tenant shall only be obligated to repair and restore the Leased
Property to the extent of moneys released by Hotel Mortgagee or Landlord,
plus any sums made available by Landlord for repairs and restoration.
10.3 Damage Near End of Term. Notwithstanding any provisions of
---- -----------------------
Section 10.1 or 10.2 to the contrary, if damage to or destruction of the Leased
- --------------------
Property occurs during the last twelve (12) months of the Term and if such
damage or destruction cannot reasonably be
40
<PAGE>
expected to be fully repaired and restored prior to the date that is six (6)
months prior to the end of the Term, the provisions of Section 10.2.1 shall
--------------
apply as if the Leased Property had been totally or partially destroyed and the
Hotel rendered Unsuitable for its Permitted Use.
10.4 Tenant's Property. All insurance proceeds payable by reason of
---- -----------------
any loss of or damage to any of Tenant's Personal Property shall be paid to
Tenant and, to the extent necessary to repair or replace Tenant's Personal
Property in accordance with Section 10.5, Tenant shall hold such proceeds to pay
------------
the cost of repairing or replacing damaged Tenant's Personal Property.
10.5 Restoration of Tenant's Property. If Tenant is required to
---- --------------------------------
restore the Leased Property as hereinabove provided, Tenant shall either (a)
restore Tenant's Personal Property, if any, or (b) replace Tenant's Personal
Property, if any, with items of the same or better quality and utility to the
operation of the Leased Property.
10.6 Waiver. Tenant hereby waives any statutory rights of
---- ------
termination which may arise by reason of any damage or destruction of the Leased
Property.
10.7 Casualty -- Conflicting Terms. Notwithstanding any provision of
---- -----------------------------
this Article 10 to the contrary, if any Hotel Mortgage, **[Sea View -- Ground
----------
Lease,]** or Management Agreement contains provisions which apply in the event
of a casualty and which are in conflict with the terms of this Article 10, then
----------
such Hotel Mortgage, **[Sea View -- Ground Lease,]** or Management Agreement
shall control to the extent of such conflict.
ARTICLE 11
----------
CONDEMNATION
------------
11.1 Total Condemnation, Etc. In the event (a) the whole of the
---- -----------------------
Leased Property shall be taken or condemned for a public or quasi-public use or
purpose by a Condemnor or sold by Landlord in lieu thereof, (b) such a portion
of the Leased Property shall be taken, condemned or sold in lieu thereof so that
the balance cannot be used for the same purpose and with substantially the same
utility to Tenant as immediately prior to such taking, or (c) the Leased
Property or any portion thereof shall be taken or condemned for a pubic or
quasi-public use or purpose by a Condemnor or sold by Landlord in lieu thereof
and Landlord is unable to repair, rebuild or restore the same under the terms of
any agreement to which it is a party, under the Franchise Agreement or under any
Legal Requirements or other governmental order to which Landlord or the Leased
Property is subject (a "Prohibited Taking"), this Agreement shall terminate upon
-----------------
delivery of possession to the Condemnor or its assignee, and any Award shall be
paid to and be the sole property of Landlord whether the Award shall be made as
compensation for diminution of the value of the leasehold estate or the fee of
the Land or otherwise, and Tenant hereby assigns to Landlord all of Tenant's
right, title and interest in and to any and all of the Award. Tenant shall
have no claim against Landlord by reason of such taking or termination and shall
not have any claim or right to any portion of the Award to be paid to Landlord.
Tenant shall continue to pay Rent and other charges hereunder until the
Agreement is terminated.
11.2 Partial Taking. In the event (a) only a part of the Leased
---- --------------
Property is taken or condemned but the Leased Property or the part remaining can
still be used for the same purpose
41
<PAGE>
and with substantially the same utility to Tenant as immediately prior to such
taking, or (b) a Prohibited Taking has not occurred, this Agreement shall not
terminate and Landlord, at Landlord's sole cost and expense, shall repair and
restore the remaining Leased Improvements provided the cost and expense of such
repair and restoration does not exceed the amount of the Award. If the cost of
such repair and restoration exceeds the amount of the Award, Landlord may
terminate this Agreement by giving written notice of termination to Tenant
within thirty (30) days of the delivery of possession to the Condemnor. If
Landlord is obligated to repair and restore the remaining Leased Improvements as
herein provided, there shall be no abatement or reduction in any Rent or other
charges payable by Tenant under this Agreement because of such taking or
condemnation; provided, however, Minimum Rent shall be abated (i) during the
period of such restoration, to the extent the Leased Property is not tenantable,
or (ii) following the completion of the restoration, to the extent the Leased
Improvements are not tenantable.
11.3 Tenant's Award. Tenant shall have no right to claim and recover
---- --------------
from the Condemnor or from Landlord such compensation as may otherwise be
separately awarded to Tenant for any damage to Tenant's business by reason of
such condemnation and for any cost or loss incurred by Tenant in removing or
relocating Tenant's merchandise, fixtures and furnishings to the extent same
would decrease Landlord's Award.
11.4 Condemnation -- Conflicting Terms. Notwithstanding any
---- ---------------------------------
provision of this Article 11 to the contrary, if any Hotel Mortgage, **[Sea View
----------
- -- Ground Lease,]** or Management Agreement contains provisions which apply in
the event of a condemnation and which are in conflict with the Terms of this
Article 11, then such Hotel Mortgage, **[Sea View -- Ground Lease,]** or
- ----------
Management Agreement shall control to the extent of such conflict.
ARTICLE 12
----------
DEFAULTS AND REMEDIES
---------------------
12.1 Events of Default. The occurrence of any one or more of the
---- -----------------
following events shall constitute an "Event of Default" hereunder:
----------------
(a) should Tenant fail to make any payment of the Rent or any
other sum when due and such failure shall continue for a period of ten
(10) days after notice by Landlord; provided, however, that in the
event Landlord has given two (2) such notices in any one (1) Fiscal
Year, Landlord shall not be required to give any further notices and,
thereafter, an Event of Default shall then occur; or
(b) should Tenant or the Manager fail to reimburse Landlord for
the costs of insurance maintained under Article 9, or should Tenant or
---------
the Manager fail to maintain any insurance coverages required under
Article 9, and such failure shall continue for ten (10) days after
---------
Notice thereof (except that no Notice shall be required if any such
insurance coverages shall have lapsed); or
(c) should Tenant default in the due observance or performance of
any of the terms, covenants or agreements contained herein to be
performed or
42
<PAGE>
observed by it (other than as specified in clauses (a)
and (b) above and (d) through (s) below) such default shall continue
for a period of thirty (30) days after Notice thereof from Landlord to
Tenant; provided, however, that if such default is susceptible of cure
-------- -------
but such cure cannot be accomplished with due diligence within such
period of time and if, in addition, Tenant commences to cure or cause
to be cured such default within fifteen (15) days after Notice thereof
from Landlord and thereafter prosecutes the curing of such default
with all due diligence, such period of time shall be extended to such
period of time as may be reasonably and commercially necessary to cure
such default with all due diligence; or
(d) should an event of default occur and be continuing beyond the
expiration of any applicable cure period under any of the Incidental
Documents; or
(e) should there occur a final unappealable determination by a
Government Agency of the revocation or limitation of any material
license, permit, certification or approval required for the lawful
operation of the Hotel in accordance with its Permitted Use or the
loss or material limitation of any material license, permit,
certification or approval under any other circumstances under which
Tenant or the Manager is required to cease its operation of the Hotel
in accordance with its Permitted Use at the time of such loss or
limitation if such revocation or limitation was a result of any act or
failure to act by Manager or Tenant; or
(f) should Tenant or Manager generally not be paying its debts as
they become due or should Tenant make a general assignment for the
benefit of creditors; or
(g) should Tenant or Manager file a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, or consent to the appointment of a custodian,
receiver, trustee or other similar office with respect to it or any
substantial part of its assets, or take corporate action for the
purpose of any of the foregoing; or if a court or governmental
authority of competent jurisdiction shall enter an order appointing,
without consent by the Tenant or Manager, a custodian, receiver,
trustee or other similar officer with respect to Tenant or Manager or
any substantial part of its assets, or if an order for relief shall be
entered in any case or proceeding for liquidation or reorganization or
otherwise to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation
of Tenant or Manager, or if any petition for any such relief shall be
filed against Tenant or Manager and such petition shall not be
dismissed within one hundred twenty (120) days; or
(h) should Tenant or Manager cause or institute any proceeding
for its dissolution or termination; or
43
<PAGE>
(i) should Tenant or Manager be, or cause Landlord to be, in
default under the Hotel Mortgage **[Sea View --, the Ground Lease,]**
or any mortgage or deed of trust or other similar security document
which is secured by Tenant's leasehold interest hereunder or should
the mortgagee or beneficiary, as applicable, under any such leasehold
mortgage or leasehold deed of trust or other similar security document
accelerate the indebtedness secured thereby or commence a foreclosure
action in connection with said leasehold mortgage; provided, however,
if (i) Tenant agrees in writing to indemnify Landlord for any and all
costs, expenses, and fees of Landlord (including reasonable attorneys'
fees) in connection with said default, and (ii) Landlord's interest in
the Leased Property will not be materially adversely effected by any
delay in the cure of such default, then Tenant shall have thirty (30)
days to cure any such default; or
(j) should the estate or interest of Tenant in the Leased
Property or any part thereof be levied upon or attached in any
proceeding and the same shall not be vacated or discharged within the
later of (i) one hundred twenty (120) days after commencement thereof,
unless the amount in dispute is less than $50,000.00, in which case
Tenant shall give notice to Landlord of the dispute but Tenant may
defend in any suitable way, and (ii) thirty (30) days after receipt by
Tenant of Notice thereof from Landlord (unless Tenant shall be
contesting such lien or attachment in good faith in accordance with
Article 8); or
---------
(k) should any default by Tenant as "Owner" under the Management
Agreement occur and be continuing beyond the expiration of any
applicable cure period under the Management Agreement; or
(l) should a Change of Control of Tenant occur other than as
provided in Sections 22.22 or 5.4, respectively; or
-------------- ---
(m) should Tenant or Manager be, or cause Landlord to be, in
default beyond applicable grace periods, if any, under any Franchise
Agreement relating to the Leased Property including any Termination of
the Franchise Agreement, if any, without Landlord's prior written
consent; or
(n) should Tenant or Manager voluntarily cease operations of the
Leased Property for more than three (3) days other than by reason of
casualty, Condemnation or Force Majeure; or
(o) should the estate or interest of Tenant in this Agreement
voluntarily or involuntarily, be transferred, assigned, conveyed,
levied upon or attached; or
(p) should Tenant fail to observe or perform any other term of
any Participating Leases and the continuation of such failure for a
period of thirty (30) days after receipt by Tenant of notice from the
Landlord thereof, unless Tenant is diligently proceeding to cure, in
which case the cure period will be extended to one hundred eighty
(180) days; provided, however, if such failure cannot be cured
-------- -------
44
<PAGE>
within the one hundred eighty (180) day period and the Tenant
continues to act, with diligence, to correct such failure within said
one hundred eighty (180) days, then Tenant will be afforded up to an
additional ninety (90) days to cure such failure; or
(q) should an Event of Default occur under a Participating Lease;
or
(r) **[Sea View -- (r) should Tenant or Manager be, or cause
Landlord to be, in default beyond applicable grace periods, if any,
under any Ground Lease affecting the Leased Property; or]**
(s) Should Tenant fail to maintain the Security Deposit in
accordance with the procedures set forth in Exhibit F; or
---------
(t) Should Tenant fail to comply with the Minimum Operating
Standards for a period of thirty (30) days after notice thereof;
provided, however, that in the event Landlord has given one (1) such
notice during the Term, Landlord shall not be required to give any
further notice and, thereafter, an Event of Default shall then occur;
or
(u) Should there be a Change in Operation without Landlord's
prior written consent which such Change in Operation is not corrected
within thirty (30) days after Landlord's request therefor; or
(v) Should Tenant incur any Indebtedness except as expressly
provided in Section 21.4;
------------
then, and in any such event, Landlord, in addition to all other remedies
available to it, may terminate this Agreement by giving Notice thereof to Tenant
and upon the expiration of the time, if any, fixed in such Notice, this
Agreement shall terminate and all rights of Tenant under this Agreement shall
cease. Landlord shall have and may exercise all rights and remedies available
at law and in equity to Landlord as a result of Tenant's breach of this
Agreement.
12.2 Remedies. None of (a) the termination of this Agreement
---- --------
pursuant to Section 12.1, (b) the repossession of the Leased Property or any
------------
portion thereof, (c) the failure of Landlord to re-let the Leased Property or
any portion thereof, nor (d) the re-letting of all or any portion of the Leased
Property, shall relieve Tenant of its liability and obligations hereunder, all
of which shall survive any such termination, repossession or re-letting. In the
event of any such termination, Tenant shall forthwith pay to Landlord all Rent
due and payable with respect to the Leased Property through and including the
date of such termination. Thereafter, Tenant, until the end of what would have
been the Term of this Agreement in the absence of such termination, and whether
or not the Leased Property or any portion thereof shall have been re-let, shall
be liable to Landlord for, and shall pay to Landlord, as current damages, the
Rent and other charges which would be payable hereunder for the remainder of the
Term had such termination not occurred, less the net proceeds, if any, of any
re-letting of the Leased Property, after deducting all reasonable expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, legal expenses, attorneys' fees, advertising,
expenses of employees, alteration costs and expenses of preparation for such re-
letting. Tenant shall pay
45
<PAGE>
such current damages to Landlord monthly on the days on which the Minimum Rent
would have been payable hereunder if this Agreement had not been so terminated.
At any time after such termination, as liquidated final damages beyond the date
of such termination, at Landlord's election, Tenant shall pay to Landlord an
amount equal to the present value (discounted at the Interest Rate) of the
excess, if any, of the Rent and other charges which would be payable hereunder
from the date of such termination (assuming that, for the purposes of this
Section 12.2, annual payments by Tenant on account of Additional Charges and
- ------------
Participating Rent would be the same as payments required for the immediately
preceding twelve (12) calendar months, or if less than twelve (12) calendar
months have expired since the Commencement Date, the payments required for such
lesser period adjusted to an annual amount) for what would be the then unexpired
term of this Agreement if the same remained in effect, over the fair market
rental for the same period, less any current damages already paid by Tenant.
Nothing contained in this Agreement shall, however, limit or prejudice the right
of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, the damages are to be
proved, whether or not the amount be greater than, equal to, or less than the
amount of the loss or damages referred to above. In case of any Event of
Default, re-entry, expiration and dispossession by summary proceedings or
otherwise, Landlord may (a) re-let the Leased Property or any part or parts
thereof, either in the name of Landlord or otherwise, for a term or terms which
may at Landlord's option, be equal to, less than or exceed the period which
would otherwise have constituted the balance of the Term and may grant
concessions or free rent to the extent that Landlord considers advisable and
necessary to re-let the same, and (b) may make such reasonable alterations,
repairs and decorations in the Leased Property or any portion thereof as
Landlord in its sole and absolute discretion, considers advisable and necessary
for the purpose of re-letting the Leased Property; and the making of such
alterations, repairs and decorations shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no event
be liable in any way whatsoever for any failure to re-let all or any portion of
the Leased Property, or, in the event that the Leased Property is re-let, for
failure to collect the rent under such re-letting. To the maximum extent
permitted by law, Tenant hereby expressly waives any and all rights of
redemption granted under any present or future laws in the event of Tenant being
evicted or dispossessed, or in the event of Landlord obtaining possession of the
Leased Property, by reason of the occurrence and continuation of an Event of
Default hereunder. Additionally, upon the occurrence of an Event of Default,
Landlord may, in addition to any other remedies provided herein or available at
law or in equity, enter upon the Leased Property or any portion thereof and take
possession of any and all of Tenant's Personal Property, if any, and the
Records, without liability for trespass or conversion (Tenant hereby waiving any
right to notice or hearing prior to such taking of possession by Landlord) and
sell the same at public or private sale, after giving Tenant reasonable Notice
of the time and place of any public or private sale, at which sale Landlord or
its assigns may purchase all or any portion of Tenant's Personal Property, if
any, unless otherwise prohibited by law. Unless otherwise provided by law and
without intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable Notice shall be met if such Notice is
given at least ten (10) days before the date of sale. The proceeds from any such
disposition, less all expenses incurred in connection with the taking of
possession, holding and selling of such property (including, without limitation,
reasonable attorneys' fees) shall be applied as a credit against the
indebtedness which is secured by the security interest granted in Section 7.2.
------------
Any surplus shall
46
<PAGE>
be paid to Tenant or as otherwise required by law and Tenant shall pay any
deficiency to Landlord, as Additional Charges, upon demand. Notwithstanding
anything herein contained to the contrary, Tenant shall not be liable to
Landlord for consequential, punitive or exemplary damages.
12.3 Tenant's Waiver. IF THIS AGREEMENT IS TERMINATED PURSUANT TO
---- ---------------
SECTION 12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT
- --------------------
TO A TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES
SET FORTH IN THIS ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN
----------
FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.
12.4 Application of Funds. Any payments received by Landlord under
---- --------------------
any of the provisions of this Agreement during the existence or continuance of
any Event of Default (and any payment made to Landlord rather than Tenant due to
the existence of any Event of Default) shall be applied to Tenant's current and
past due obligations under this Agreement in such order as Landlord may
determine or as may be prescribed by the laws of the State.
12.5 Landlord's Right to Cure Tenant's Default. If an Event of
---- -----------------------------------------
Default shall have occurred and be continuing, Landlord, after Notice to Tenant
(which Notice shall not be required if Landlord shall reasonably determine
immediate action is necessary to protect person or property), without waiving or
releasing any obligation of Tenant and without waiving or releasing any Event of
Default, may (but shall not be obligated to), at any time thereafter, make such
payment or perform such act for the account and at the expense of Tenant, and
may, to the maximum extent permitted by law, enter upon the Leased Property or
any portion thereof for such purpose and take all such action thereon as, in
Landlord's sole and absolute discretion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Tenant. All reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Landlord in connection therewith, together with interest thereon (to
the extent permitted by law) at the Overdue Rate from the date such sums are
paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand.
ARTICLE 13
----------
HOLDING OVER
------------
13.1 Holding Over. Any holding over by Tenant after the
---- ------------
expiration or sooner termination of this Agreement after thirty (30) days prior
written notice by Landlord shall be treated as a daily tenancy at sufferance at
a rate equal to one and one-half (1.5) times the Rent and other charges herein
provided (prorated on a daily basis). Tenant shall also pay to Landlord all
direct damages sustained by reason of any such holding over. Otherwise, such
holding over shall be on the terms and conditions set forth in this Agreement,
to the extent applicable. Nothing contained herein shall constitute the
consent, express or implied, of Landlord to the holding over of Tenant after the
expiration or earlier termination of this Agreement.
47
<PAGE>
ARTICLE 14
----------
LIMITATION ON LIABILITY
-----------------------
14.1 Limitation of Liability. (a) Notwithstanding any provision
---- -----------------------
of this Agreement to the contrary, there shall be absolutely no personal
liability on the part of Landlord or the REIT or their Affiliates, shareholders,
directors, trustees, partners, advisors, agents, employees, or their respective
successors or assigns or any mortgagee in possession, with respect to any of the
terms, covenants, or conditions of this Agreement with respect to any act,
omission or negligence of Landlord. Tenant shall look solely to Landlord's
estate and property in the Leased Property and the proceeds thereof for the
satisfaction of Tenant's remedies whether for the collection of any judgment or
other judicial process requiring the payment of money by Landlord in the event
of any default by Landlord hereunder or otherwise, and no other property or
assets of Landlord shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies under or with respect to
this Agreement, the relationship of Landlord and Tenant or Tenant's use or
occupancy of the Leased Property.
(b) Notwithstanding any provision of this Agreement to the
contrary, there shall be absolutely no personal liability on the part
of Tenant's Parent or Affiliates with respect to any of the terms,
covenants, or conditions of this Agreement with respect to any act,
omission or negligence of Tenant. Landlord shall look solely to
Tenant's property and the proceeds thereof for the satisfaction of
Landlord's remedies whether for the collection of any judgment or
other judicial process requiring the payment of money by Tenant in the
event of any default by Tenant hereunder or otherwise
ARTICLE 15
----------
SECURITY
--------
15.1 Security Deposit.
---- ----------------
(a) To secure the debt, liability and obligations of Tenant to
Landlord under this Agreement and the Participating Leases and any
amendments, modifications, extensions, renewals or replacements of
this Agreement and the Participating Leases (all of which liabilities
and obligations of Tenant being herein collectively referred to as the
"Security Obligations"), Tenant shall from and after the Commencement
--------------------
Date, and from time to time as required herein, until such amounts
representing the Security Deposit (hereinafter defined) have been
deposited with Landlord, deposit with Landlord an amount equal to
fifty percent (50%) of Net Cash Flow which, at Tenant's election, may
be utilized by Landlord to purchase, on behalf of Tenant, REIT Shares,
and shall pledge, hypothecate, assign, transfer and grant to Landlord
a continuing lien and perfected security interest in and to such items
and in such amounts and as further described on Exhibit F attached
---------
hereto and hereby made a part hereof, and all renewals, extensions and
substitutions thereof, together with all rights in connection with
48
<PAGE>
the foregoing, including, but not limited to, all distributions,
including cash, and other property, real or personal, tangible or
intangible, and all proceeds distributed on account of the foregoing,
and substitutions for and proceeds or products of any of the foregoing
(collectively, the "Security Deposit").
----------------
(b) Tenant agrees that Landlord may at any time, after the
occurrence of an Event of Default and without notice and demand to
Tenant, and at Landlord's sole cost except as otherwise expressly
provided herein, (i) notify the obligor on or issuer of any Security
Deposit to make payment to Landlord of any amounts due or distributed
thereon, (ii) in Tenant's name or Landlord's name enforce collection
of any Security Deposit by suit or otherwise, or surrender, release or
exchange all or any part of it, or compromise, extend or renew for any
period any obligation evidenced by the Security Deposit, (iii) receive
all proceeds of the Security Deposit, and (iv) hold any increase or
profits received from the Security Deposit as additional security for
the Security Obligations, except that any money received from the
Security Deposit shall, at Landlord's option, be applied in reduction
of the Security Obligations, in such order of application as Landlord
may determine; provided, however, nothing contained herein shall
preclude Landlord from exercising all rights and remedies available at
law and in equity to Landlord as a result of Tenant's breach of this
Agreement.
15.2 Representations, Warranties and Covenants. Tenant represents
---- -----------------------------------------
and warrants to and covenants and agrees with Landlord that: (a) Tenant will
duly endorse each and every instrument constituting the Security Deposit by
signing on said instrument or by signing a separate document of assignment or
transfer, if required by Landlord; (b) Tenant shall not sell or transfer or
contract to sell or transfer the Security Deposit or any portion thereof until
same is seized by Landlord; (c) Tenant shall pay, when due, all taxes and other
governmental charges levied or assessed upon or against any Security Deposit;
(d) at any time, upon request by Landlord, Tenant shall deliver to Landlord all
notices, financial statements, reports or other communications received by
Tenant as an owner or holder of the Security Deposit; (e) Tenant shall upon
receipt deliver to Landlord in pledge as Security Deposit all proceeds
distributed on account of the Security Deposit such as cash flow and sale
proceeds; (f) Tenant is the owner of the Security Deposit free and clear of all
liens, encumbrances, security interests and restrictions, except for any
security interests granted to Landlord pursuant to the terms of this Agreement;
and (g) the pledge of the Security Deposit herein by Tenant has been duly
authorized by all requisite actions of Tenant and is not in breach of any
agreement of Tenant. Tenant hereby agrees to execute any and all instruments
required by Landlord to establish, maintain and continue Landlord's perfected
security interest in the Security Deposit.
15.3 Possession and Maintenance of Security Deposit. The Security
---- ----------------------------------------------
Deposit shall be at all times in the possession of Landlord. All cash, and
distributions of cash from REIT Shares, held in connection with the Security
Deposit shall be held in an interest bearing account. Landlord shall take all
necessary action as it deems appropriate to preserve, protect, replenish and
maintain the Security Deposit and the rights represented and evidenced by the
Security Deposit, and the costs and expenses thereof shall be paid by Tenant;
provided, however, Landlord shall not have any liability for any loss to the
Security Deposit not attributable to Landlord's gross negligence, or intentional
misconduct, and no such loss shall relieve Tenant of
49
<PAGE>
its obligations under this Agreement. Landlord shall, at the Termination of this
Agreement, and after the surrender of the Leased Property pursuant to the Terms
of Article 5 hereof, return the balance, if any, of the Security Deposit to
Tenant.
ARTICLE 16
----------
SUBLETTING AND ASSIGNMENT
-------------------------
16.1 Subletting and Assignment. Tenant shall not, except in the
---- -------------------------
ordinary course of hotel operations and as otherwise expressly provided herein,
without Landlord's prior written consent (which consent may be given or withheld
in Landlord's sole and absolute discretion), assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer this Agreement or sublease (which
term shall be deemed to include the granting of concessions, licenses and the
like), all or any part of the Leased Property or suffer or permit this Agreement
or the leasehold estate created hereby or any other rights arising under this
Agreement to be assigned, transferred, mortgaged, pledged, hypothecated or
encumbered, in whole or in part, whether voluntarily, involuntarily or by
operation of law, or permit the use or operation of the Leased Property by any
Person other than Tenant and the Manager, on behalf of Tenant pursuant to the
express terms of the Management Agreement, or the Leased Property to be offered
or advertised for assignment or subletting. For purposes of this Section 16.1,
------------
an assignment of this Agreement shall be deemed to include any transaction
pursuant to which Tenant is merged or consolidated with another Person or
pursuant to which all or substantially all of Tenant's assets are transferred to
any other Entity, as if such Change in Control or transaction were an assignment
of this Agreement; provided, however, Tenant shall have the right to assign this
Agreement to any successor or assignee of Tenant which may result from any
merger, consolidation or reorganization or to another corporation or entity
which acquires all or substantially all of the business and assets of Tenant as
long as Tenant remains liable hereunder. No subletting or assignment shall in
any way impair the continuing primary liability of Tenant hereunder (unless
Landlord and Tenant expressly otherwise agree that Tenant shall be released from
all obligations hereunder), and no consent to any subletting or assignment in a
particular instance shall be deemed to be a waiver of the prohibition set forth
in this Section 16.1. No assignment, subletting or occupancy shall affect any
------------
Permitted Use. Any subletting, assignment or other transfer of Tenant's
interest under this Agreement in contravention of this Section 16.1 shall be
------------
voidable at Landlord's option.
16.2 Required Sublease Provisions. Any sublease of all or any
---- ----------------------------
portion of the Leased Property entered into on or after the date hereof shall be
consistent with any applicable terms and conditions of the Management Agreement
and shall provide: (a) that it is subject and subordinate to this Agreement and
to the matters to which this Agreement is or shall be subject or subordinate;
(b) that in the event of termination of this Agreement or reentry or
dispossession of Tenant by Landlord under this Agreement, Landlord may, at its
option, terminate such sublease or take over all of the right, title and
interest of Tenant, as sublessor under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that neither Landlord nor any Hotel
Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such
mortgagee succeeds to that position,
50
<PAGE>
shall (i) be liable for any act or omission of Tenant under such sublease, (ii)
be subject to any credit, counterclaim, offset or defense which theretofore
accrued to such subtenant against Tenant, (iii) be bound by any previous
modification of such sublease not consented to in writing by Landlord or by any
previous prepayment of more than one (1) month's Rent, (iv) be bound by any
covenant of Tenant to undertake or complete any construction of the Leased
Property or any portion thereof, (v) be required to account for any security
deposit of the subtenant other than any security deposit actually delivered to
Landlord by Tenant, (vi) be bound by any obligation to make any payment to such
subtenant or grant any credits, except for services, repairs, maintenance and
restoration provided for under the sublease that are performed after the date of
such attornment, (vii) be responsible for any monies owing by Tenant to the
credit of such subtenant, or (viii) be required to remove any Person occupying
any portion of the Leased Property; and (c) in the event that such subtenant
receives a written Notice from Landlord or any Hotel Mortgagee stating that an
Event of Default has occurred and is continuing, such subtenant shall thereafter
be obligated to pay all rentals accruing under such sublease directly to the
party giving such Notice or as such party may direct for so long as such Event
of Default remains uncured. All rentals received from such subtenant by Landlord
or the Hotel Mortgagee, as the case may be, shall be credited against the
amounts owing by Tenant under this Agreement and such sublease shall provide
that the subtenant thereunder shall, at the request of Landlord, execute a
suitable instrument in confirmation of such agreement to attorn. An original
counterpart of each such sublease and assignment and assumption, duly executed
by Tenant and such subtenant or assignee, as the case may be, in form and
substance reasonably satisfactory to Landlord, shall be delivered promptly to
Landlord and (a) in the case of an assignment, the assignee shall assume in
writing and agree to keep and perform all of the terms of this Agreement on the
part of Tenant to be kept and performed and shall be, and become, jointly and
severally liable with Tenant for the performance thereof and (b) in case of
either an assignment or subletting, Tenant shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Tenant hereunder. The provisions of this Section 16.2 shall not be
------------
deemed a waiver of the provisions set forth in Section 16.1.
------------
16.3 Sublease Limitation. For so long as the REIT shall seek to
---- -------------------
qualify as a real estate investment trust, anything contained in this Agreement
to the contrary notwithstanding, Tenant shall not sublet the leased Property on
any basis such that the rental to be paid by any sublessee thereunder would be
based, in whole or in part, on either (a) the net income or profits derived by
the business activities of such sublessee, or (b) any other formula such that
any portion of such sublease rental, if it were paid as rent directly to the
REIT, would fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or any similar or successor provision thereto nor
shall Tenant sublease the Leased Property to, or enter into any similar
arrangement with, any Person in which the REIT owns, directly or indirectly, a
10% or more interest, within the meaning of Section 856(d) of the Code or any
similar or successor provisions thereto; provided, however, after Landlord has
approved such sublease, the failure of Tenant to comply with this Section 16.3
------------
shall not constitute an Event of Default with respect to such sublease, as
approved.
51
<PAGE>
ARTICLE 17
----------
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
-----------------------------------------------
17.1 Estoppel Certificates. At any time and from time to time,
---- ---------------------
but in no event more than four (4) times per Fiscal Year, upon not less than ten
(10) Business Days prior Notice by either party, the party receiving such Notice
shall furnish to the other an Officer's Certificate certifying that this
Agreement is unmodified and in full force and effect (or that this Agreement is
in full force and effect as modified and setting forth the modifications), the
date to which the Rent has been paid, that no Default or an Event of Default has
occurred and is continuing or, if a Default or an Event of Default shall exist,
specifying in reasonable detail the nature thereof, and the steps being taken to
remedy the same, and such additional information as the requesting party may
reasonably request. Any such certificate furnished pursuant to this Section
-------
17.1 may be relied upon by the requesting party, its lenders and any prospective
- ----
purchaser or mortgagee of the Leased Property or the leasehold estate created
hereby.
17.2 **[Omaha -- 17.2 Financial Statements. Tenant shall keep true
---- -------- --------------------
records and books of account of Tenant in which full, true and correct entries
will be made of dealings and transactions in relation to the business and
affairs of Tenant in accordance with GAAP, where applicable. All records and
books of account of Tenant shall be maintained by Tenant for a period of not
less than seven (7) years after the termination of the Term. Tenant shall apply
accounting principles in the preparation of the financial statements of Tenant
which, in the judgment of and the opinion of its independent public accountants,
are in accordance with GAAP and the Uniform System of Accounts, where
applicable, except for changes approved by such independent public accountants.
Tenant shall provide to Landlord either in a footnote to the financial
statements delivered under this Section 17.2 which relate to the period in which
------------
such change occurs, or in separate schedules to such financial statements,
information sufficient to show the effect of any such changes on such financial
statements. Tenant shall furnish the following statements to Landlord:
(a) within twenty (20) days after each of the first three
quarters of any Fiscal Year, the most recent Financials, accompanied
by a Financial Officer's Certificate;
(b) within one hundred twenty (120) days after the end of each
Fiscal Year, the most recent Financials for such year, accompanied by
a Financial Officer's Certificate;
(c) within twenty (20) days after the end of each Accounting
Period, an unaudited operating statement prepared for the Leased
Property, including Gross Revenues and Gross Operating Expenses,
accompanied by a Financial Officer's Certificate containing an
explanation of the performance of the Leased Property;
(d) promptly after the sending or filing thereof, copies of all
reports, if any, which Tenant or Manager sends to its security holders
generally, and copies
52
<PAGE>
of all periodic reports, if any, which Tenant or
Manager files with the SEC or any stock exchange on which its shares
are listed or traded;
(e) promptly after the delivery thereof to Tenant, a copy of any
management letter or written report prepared by the certified public
accountants with respect to the financial condition, operations,
business or prospects of Tenant;
(f) at any time and from time to time upon not less than twenty
(20) days Notice from Landlord, and to the extent same is within the
reasonable control of Tenant, any Financials or any other financial
reporting information required to be filed by Landlord with any
securities and exchange commission, the SEC or any successor agency,
or any other governmental authority, or required pursuant to any order
issued by any court, Government Agency or arbitrator in any litigation
to which Landlord is a party, for purposes of compliance therewith;
and
(g) promptly, upon Notice from Landlord, such other information
concerning the business, financial condition and affairs of Tenant as
Landlord reasonably may request from time to time.
Landlord may at any time, and from time to time, provide any Hotel Mortgagee
with copies of any of the foregoing statements. In addition, Landlord shall
have the right, from time to time at Landlord's sole cost and expense, upon
reasonable Notice, during Tenant's customary business hours, to cause Tenant's
books and records with respect to the Leased Property to be audited by auditors
selected by Landlord at the place where such books and records are customarily
kept.
17.3 Annual Budget. Prior to the commencement of each Lease Year,
---- -------------
Tenant shall prepare and submit to Landlord an operating budget (the "Operating
---------
Budget") and a capital budget (the "Capital Budget") prepared in accordance with
- ------ --------------
the requirements of this Section 17.3. The Operating Budget and the Capital
------------
Budget (together, the "Annual Budget") shall show the following:
-------------
(a) Tenant's reasonable estimate of Gross Revenues (including
estimated room rates and Room Revenues, Food Sales, Beverage Sales,
Telephone Revenues, and Other Income) and estimates of all amounts
needed for the following expenses: administrative and general;
advertising and sales promotion; heat, light and power; repairs and
maintenance; and expenses for the rooms, food and beverage, and other
operating departments of the Hotel, and Additional Charges, for the
forthcoming Lease Year itemized on schedules on a monthly basis as
approved by Landlord and Tenant;
(b) A schedule of all Capital Expenditures and Capital Repairs
and replacements and renewals of FF&E planned for the forthcoming
Lease Year;
(c) Tenant's proposal for the Competitive Set; and
(d) Any other schedules reasonably requested by Landlord.
53
<PAGE>
Landlord, Tenant and Manager shall consult in good faith concerning
the Operating Budget within twenty (20) days after Landlord's receipt of the
Operating Budget. Tenant and Manager shall, after such consultations, submit to
Landlord within ten (10) days after the expiration of such twenty (20) day
period an appropriate revised Operating Budget. Landlord shall have the right
to approve the Capital Budget except for certain items to be selected by Manager
(not to exceed in the aggregate the greater of $50,000 or 15% of the estimated
amount to be contributed to the Reserve Fund for the applicable Fiscal Year).
If Landlord disapproves any items in the Capital Budget, Landlord shall
recommend alternative expenditures in an equal aggregate dollar amount for such
Fiscal Year. In the event the recommendations as to alternative expenditures
are rejected, the items in dispute on the Capital Budget will be submitted to a
recognized hotel accounting firm for resolution, in keeping with the need to
maintain the position of the Hotel in its geographical market and as a member of
the Marriott chain of hotels. Such firm shall be jointly selected by Landlord,
Tenant and Manager (neither such approval to be unreasonably withheld). Such
accounting firm's decision on such matters will be binding on the parties, and
the expenses incurred for such firm's analysis and determination will be paid by
all parties equally; provided, however, with respect to Capital Expenditures or
-------- -------
Capital Repairs which would exceed twenty-five percent (25%) of the amounts to
be contributed to the Reserve Fund in such Fiscal Year, such determination shall
not be binding on Landlord.]**
17.4 **[Laguardia -- 17.4 Financial Statements. Tenant shall keep
--------- --------------------
true records and books of account of Tenant in which full, true and correct
entries will be made of dealings and transactions in relation to the business
and affairs of Tenant in accordance with GAAP, where applicable. All records
and books of account of Tenant shall be maintained by Tenant for a period of not
less than seven (7) years after the termination of the Term. Tenant shall apply
accounting principles in the preparation of the financial statements of Tenant
which, in the judgment of and the opinion of its independent public accountants,
are in accordance with GAAP and the Uniform System of Accounts, where
applicable, except for changes approved by such independent public accountants.
Tenant shall provide to Landlord either in a footnote to the financial
statements delivered under this Section 17.2 which relate to the period in which
------------
such change occurs, or in separate schedules to such financial statements,
information sufficient to show the effect of any such changes on such financial
statements. Tenant shall furnish the following statements to Landlord:
(a) within twenty (20) days after each of the first three
quarters of any Fiscal Year, the most recent Financials, accompanied
by a Financial Officer's Certificate;
(b) within sixty (60) days after the end of each Fiscal Year, the
most recent Financials for such year, accompanied by a Financial
Officer's Certificate;
(c) within twenty (20) days after the end of each Accounting
Period, an unaudited operating statement prepared for the Leased
Property, including Gross Revenues and Gross Operating Expenses,
accompanied by a Financial Officer's Certificate containing an
explanation of the performance of the Leased Property;
54
<PAGE>
(d) promptly after the sending or filing thereof, copies of all
reports, if any, which Tenant or Manager sends to its security holders
generally, and copies of all periodic reports, if any, which Tenant or
Manager files with the SEC or any stock exchange on which its shares
are listed or traded;
(e) promptly after the delivery thereof to Tenant, a copy of any
management letter or written report prepared by the certified public
accountants with respect to the financial condition, operations,
business or prospects of Tenant;
(f) at any time and from time to time upon not less than twenty
(20) days Notice from Landlord, and to the extent same is within the
reasonable control of Tenant, any Financials or any other financial
reporting information required to be filed by Landlord with any
securities and exchange commission, the SEC or any successor agency,
or any other governmental authority, or required pursuant to any order
issued by any court, Government Agency or arbitrator in any litigation
to which Landlord is a party, for purposes of compliance therewith;
and
(g) promptly, upon Notice from Landlord, such other information
concerning the business, financial condition and affairs of Tenant as
Landlord reasonably may request from time to time.
Landlord may at any time, and from time to time, provide any Hotel Mortgagee
with copies of any of the foregoing statements. In addition, Landlord shall
have the right, from time to time at Landlord's sole cost and expense, upon
reasonable Notice, during Tenant's customary business hours, to cause Tenant's
books and records with respect to the Leased Property to be audited by auditors
selected by Landlord at the place where such books and records are customarily
kept.
17.5 Annual Budget. Prior to the commencement of each Lease Year,
---- -------------
Tenant shall prepare and submit to Landlord an operating budget (the "Operating
---------
Budget") and a capital budget (the "Capital Budget") prepared in accordance with
- ------ --------------
the requirements of this Section 17.3. The Operating Budget and the Capital
------------
Budget (together, the "Annual Budget") shall show the following:
-------------
(a) Tenant's reasonable estimate of Gross Revenues (including
estimated room rates and Room Revenues, Food Sales, Beverage Sales,
Telephone Revenues, and Other Income) and estimates of all amounts
needed for the following expenses: administrative and general;
advertising and sales promotion; heat, light and power; repairs and
maintenance; and expenses for the rooms, food and beverage, and other
operating departments of the Hotel, and Additional Charges, for the
forthcoming Lease Year as approved by Landlord and Tenant;
(b) A schedule of all Capital Expenditures and Capital Repairs
and replacements and renewals of FF&E planned for the forthcoming
Lease Year;
(c) Tenant's proposal for the Competitive Set; and
55
<PAGE>
(d) Any other schedules reasonably requested by Landlord.
Landlord shall have forty-five (45) days to approve the Operating
Budget. If the parties are not able to reach agreement on the Operating Budget,
the determination of such matter shall be referred to Arthur Anderson & Co. or
such other accounting firm reasonable acceptably to the parties and the
determination of such firm shall be binding on the parties. Landlord's approval
of the Capital Budget shall not be unreasonably withheld.]**
17.6 **[Sea View -- 17.6 Financial Statements. Tenant shall keep
-------- --------------------
true records and books of account of Tenant in which full, true and correct
entries will be made of dealings and transactions in relation to the business
and affairs of Tenant in accordance with GAAP, where applicable. All records
and books of account of Tenant shall be maintained by Tenant for a period of not
less than seven (7) years after the termination of the Term. Tenant shall apply
accounting principles in the preparation of the financial statements of Tenant
which, in the judgment of and the opinion of its independent public accountants,
are in accordance with GAAP and the Uniform System of Accounts, where
applicable, except for changes approved by such independent public accountants.
Tenant shall provide to Landlord either in a footnote to the financial
statements delivered under this Section 17.2 which relate to the period in which
------------
such change occurs, or in separate schedules to such financial statements,
information sufficient to show the effect of any such changes on such financial
statements. Tenant shall furnish the following statements to Landlord:
(a) within twenty (20) days after each of the first three
quarters of any Fiscal Year, the most recent Financials, accompanied
by a Financial Officer's Certificate;
(b) within sixty (60) days after the end of each Fiscal Year, the
most recent Financials for such year, accompanied by a Financial
Officer's Certificate;
(c) within twenty (20) days after the end of each Accounting
Period, an unaudited operating statement prepared for the Leased
Property, including Gross Revenues and Gross Operating Expenses,
accompanied by a Financial Officer's Certificate containing an
explanation of the performance of the Leased Property;
(d) promptly after the sending or filing thereof, copies of all
reports, if any, which Tenant or Manager sends to its security holders
generally, and copies of all periodic reports, if any, which Tenant or
Manager files with the SEC or any stock exchange on which its shares
are listed or traded;
(e) promptly after the delivery thereof to Tenant, a copy of any
management letter or written report prepared by the certified public
accountants with respect to the financial condition, operations,
business or prospects of Tenant;
(f) at any time and from time to time upon not less than twenty
(20) days Notice from Landlord, and to the extent same is within the
reasonable control of Tenant, any Financials or any other financial
reporting information
56
<PAGE>
required to be filed by Landlord with any securities and exchange
commission, the SEC or any successor agency, or any other governmental
authority, or required pursuant to any order issued by any court,
Government Agency or arbitrator in any litigation to which Landlord is
a party, for purposes of compliance therewith; and
(g) promptly, upon Notice from Landlord, such other information
concerning the business, financial condition and affairs of Tenant as
Landlord reasonably may request from time to time.
Landlord may at any time, and from time to time, provide any Hotel Mortgagee
with copies of any of the foregoing statements. In addition, Landlord shall
have the right, from time to time at Landlord's sole cost and expense, upon
reasonable Notice, during Tenant's customary business hours, to cause Tenant's
books and records with respect to the Leased Property to be audited by auditors
selected by Landlord at the place where such books and records are customarily
kept.
17.7 Annual Budget. Prior to the commencement of each Lease Year,
---- -------------
Tenant shall prepare and submit to Landlord an operating budget (the "Operating
---------
Budget") and a capital budget (the "Capital Budget") prepared in accordance with
- ------ --------------
the requirements of this Section 17.3. The Operating Budget and the Capital
------------
Budget (together, the "Annual Budget") shall show the following:
-------------
(a) Tenant's reasonable estimate of Gross Revenues (including
estimated room rates and Room Revenues, Food Sales, Beverage Sales,
Telephone Revenues, and Other Income) and estimates of all amounts
needed for the following expenses: administrative and general;
advertising and sales promotion; heat, light and power; repairs and
maintenance; and expenses for the rooms, food and beverage, and other
operating departments of the Hotel, and Additional Charges, for the
forthcoming Lease Year as approved by Landlord and Tenant;
(b) A schedule of all Capital Expenditures and Capital Repairs
and replacements and renewals of FF&E planned for the forthcoming
Lease Year;
(c) Tenant's proposal for the Competitive Set; and
(d) Any other schedules reasonably requested by Landlord.
Landlord shall have thirty (30) days to approve or reject the Capital
Budget.]**
17.8 General Operations. Tenant shall furnish to Landlord:
---- ------------------
(a) Within thirty (30) days after receipt or modification
thereof, copies of all licenses authorizing Tenant and/or the Manager
to operate the Hotel for its Permitted Use; and
(b) Promptly after receipt or sending thereof, copies of all
material notices given or received by Tenant under the Management
Agreement.
57
<PAGE>
ARTICLE 18
----------
LANDLORD'S RIGHT TO INSPECT
---------------------------
18.1 Right to Inspect. Tenant shall permit, and shall cause the
---- ----------------
Manager to permit, Landlord and its authorized representatives to inspect the
Leased Property during usual business hours upon reasonable notice and to make
such repairs as Landlord is permitted to make pursuant to the terms of this
Agreement, provided that any inspection or repair by Landlord or its
representatives will not unreasonably interfere with Tenant's use and operation
of the Leased Property and further provided that in the event of an emergency,
as determined by Landlord in its reasonable discretion, prior Notice shall not
be necessary. Landlord shall not communicate directly with any employees of
Tenant or Manager, other than to Tenant's or Manager's designated
representative, without the consent of Tenant (which consent shall not be
unreasonably withheld, delayed or conditioned).
ARTICLE 19
----------
LIMITATIONS
-----------
19.1 Personal Property Limitation. Anything contained in this
---- ----------------------------
Agreement to the contrary notwithstanding, (i) the average of the adjusted tax
basis, for U.S. federal income tax purposes, of the items of Landlord's personal
property that are leased to the Tenant under this Agreement at the beginning and
at the end of any Lease Year shall not exceed 15% of the average of the
aggregate adjusted tax bases of the Leased Property at the beginning and at the
end of such Lease Year, and (ii) the value of the items of Landlord's personal
property that are leased to the Tenant under this Agreement shall not at any
time exceed 10% of the value of the Leased Property (together, the "Personal
--------
Property Limitation"). Landlord and Tenant shall at all times cooperate in good
- -------------------
faith and use their best efforts to permit Landlord to comply with the Personal
Property Limitation, which compliance may include, by way of example only and
not by way of limitation or obligation, the purchase by Tenant at fair market
value of personal property in excess of the Personal Property Limitation. All
such compliance shall be effected in a manner which has no material net economic
detriment to Tenant and will not jeopardize the REIT's status as a real estate
investment trust under the applicable provisions of the Code. This Section 19.1
------------
is intended to ensure that all of the Rent qualifies as "rents from real
property," within the meaning of Section 856(d) of the Code, and as rents
described in Section 512(b)(3)(A) of the Code, or any similar or successor
provisions thereto, and shall be interpreted in a manner consistent with such
intent.
19.2 Tenant Ownership Limitation. Anything contained in this
---- ---------------------------
Agreement to the contrary notwithstanding, Landlord shall not take, or permit an
Affiliate of Landlord to take, any action that would cause the REIT to own,
directly or indirectly, a 10% or more interest in the Tenant, or in the assets
or net profits of Tenant, within the meaning of Section 856(d) of the Code, or
any similar or successor provision thereto. Anything contained in this
Agreement to the contrary notwithstanding, Tenant shall not take, or permit an
Affiliate of Tenant to take, any action that would cause the REIT to own
directly or indirectly, a 10% or more interest in the
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Tenant, or in the assets or net profits of Tenant, within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
19.3 Director, Officer and Employee Limitation. Anything contained
---- -----------------------------------------
in this Agreement to the contrary notwithstanding, Landlord and Tenant shall
cooperate to ensure that (a) no directors, trustees, officers or employees of
Landlord, the REIT or any Affiliate of the REIT shall be directors, officers or
employees of, or own any ownership interest in, Tenant or any Affiliate thereof
(or any Person who furnishes or renders services to the Tenant or manages or
operates the Leased Property), and (b) no directors, trustees, officers or
employees of Tenant or any Affiliate thereof (or of any Person who furnishes or
renders services to the Tenant or manages or operates the Leased Property) shall
be directors, officers or employees of Landlord, the REIT or any Affiliate of
the REIT; provided, however, Tenant shall not be in default under this Agreement
if (i) Landlord has not provided Tenant with the names of Landlord's, the REIT's
or any Affiliates' directors, trustees, officers or employees and (ii) after
notifying Tenant of any breach of this covenant, Tenant, within thirty (30) days
after Notice thereof, cures, or causes to be cured, such breach.
ARTICLE 20
----------
HOTEL MORTGAGES
---------------
20.1 Landlord May Grant Liens. Without the consent of Tenant,
---- ------------------------
Landlord may, subject to the terms and conditions set forth in this Section
-------
20.1, from time to time, directly or indirectly, create or otherwise cause to
exist any lien, encumbrance or title retention agreement ("Encumbrance") upon
-----------
the Leased Property, or any portion thereof or interest therein, whether to
secure any borrowing or other means of financing or refinancing. Any such
Encumbrance (other than a Hotel Mortgage, in which event the provisions of
Section 20.2 shall govern) shall be, and shall provide that it is, subject and
- ------------
subordinate to the rights of Tenant under this Agreement. Additionally, Tenant
shall cooperate in all reasonable respects, and as generally described in
Section 22.15, with any transfer of the Leased Property to a Hotel Mortgagee
- -------------
that succeeds to the interest of Landlord in the Leased Property (including,
without limitation, in connection with the transfer of any franchise, license,
lease, permit, contract, agreement, or similar item to such Hotel Mortgagee or
such Hotel Mortgagee's designee necessary or appropriate to operate the Leased
Property). Landlord and Tenant shall cooperate in (a) including in this
Agreement by suitable amendment from time to time any provision which may be
reasonably requested by any proposed lender, or may otherwise be reasonably
necessary, to implement the provisions of this Section 20.1 and (b) entering
------------
into any further agreement with or at the request of any Hotel Mortgagee which
may be reasonably requested or required by such Hotel Mortgagee in furtherance
or confirmation of the provisions of this Section 20.1; provided, however, that
------------ -------- -------
any such amendment or agreement shall not in any way affect the Term nor affect
adversely in any material respect any rights of Landlord or Tenant under this
Agreement.
20.2 Subordination of Lease. Subject to Section 20.1 and this Section
---- ---------------------- ------------ -------
20.2, any and all rights of Tenant hereunder, are and shall be subject and
- ----
subordinate to any ground or master lease, and all renewals, extensions,
modifications and replacements thereof, and to all mortgages
59
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and deeds of trust, which may now or hereafter affect the Leased Property or any
improvements thereon and/or any of such leases, whether or not such mortgages or
deeds of trust shall also cover other lands and/or buildings and/or leases, to
each and every advance made or hereafter to be made under such mortgages and
deeds of trust, and to all renewals, modifications, replacements and extensions
of such leases and such mortgages and deeds of trust and all consolidations of
such mortgages and deeds of trust. This Section 20.2 shall be self operative and
-------------
no further instrument of subordination shall be required. In confirmation of
such subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the holder of any
such mortgage or the trustee or beneficiary of any deed of trust or any of their
respective successors in interest may reasonably request to evidence such
subordination. Any lease to which this Agreement is, at the time referred to,
subject and subordinate is herein called "Superior Lease" and the lessor of a
--------------
Superior Lease or its successor in interest at the time referred to, is herein
called "Superior Landlord" and any mortgage or deed of trust to which this
-----------------
Agreement is, at the time referred to, subject and subordinate, is herein called
"Superior Mortgage" and the holder, trustee or beneficiary of a Superior
-----------------
Mortgage is herein called "Superior Mortgagee". Tenant shall have no
------------------
obligations under any Superior Lease or Superior Mortgage other than those
expressly set forth in this Section 20.2. Subject to the provisions of this
------------
Section 20.2, if any Superior Landlord or Superior Mortgagee or the nominee or
- ------------
designee of any Superior Landlord or Superior Mortgagee shall succeed to the
rights of Landlord under this Agreement (any such person, "Successor Landlord"),
------------------
whether through possession or foreclosure action or delivery of a new lease or
deed, or otherwise, such Successor Landlord shall have the option either to
terminate this Agreement or to recognize Tenant's rights under this Agreement as
herein provided and, in such latter event, Tenant shall attorn to and recognize
the Successor Landlord as Tenant's landlord under this Agreement and Tenant
shall promptly execute and deliver any instrument that such Successor Landlord
may reasonably request to evidence such attornment (provided that such
instrument does not alter the terms of this Agreement), whereupon, this
Agreement shall continue in full force and effect as a direct lease between the
Successor Landlord and Tenant upon all of the terms, conditions and covenants as
are set forth in this Agreement, except that the Successor Landlord (unless
formerly the landlord under this Agreement or its nominee, designee or
Affiliate) shall not be (a) liable in any way to Tenant for any act or omission,
neglect or default on the part of any prior Landlord under this Agreement, (b)
responsible for any monies owing by or on deposit with any prior Landlord to the
credit of Tenant (except to the extent actually paid, credited or delivered to
the Successor Landlord), (c) subject to any counterclaim or setoff which
theretofore accrued to Tenant against any prior Landlord, (d) bound by any
modification of this Agreement subsequent to such Superior Lease or Mortgage, or
by any previous prepayment of Minimum Rent or Participating Rent for more than
one (1) month in advance of the date due hereunder, which was not approved in
writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable
to Tenant beyond the Successor Landlord's interest in the Leased Property and
the rents, income, receipts, revenues, issues and profits issuing from the
Leased Property, (f) responsible for the performance of any work to be done by
the Landlord under this Agreement to render the Leased Property ready for
occupancy by Tenant or with respect to any insurance or Condemnation proceeds),
or (g) required to remove any Person occupying the Leased Property or any part
thereof, except if such Person claims by, through or under the Successor
Landlord. Tenant agrees at any time and from time to time to execute a suitable
instrument in confirmation of Tenant's agreement to attorn, as aforesaid and, if
Tenant has been
60
<PAGE>
requested to attorn, Landlord agrees to provide Tenant with an instrument of
non-disturbance and attornment from each such Superior Mortgagee and Superior
Landlord in form and substance reasonably satisfactory to Tenant.
20.3 Notice to Mortgagee and Ground Landlord. Subsequent to the
---- ---------------------------------------
receipt by Tenant of Notice from Landlord as to the identity of any Hotel
Mortgagee or ground lessor under a lease with Landlord, as ground lessee, which
includes the Leased Property as part of the demised premises and which complies
with Sections 20.1 and 20.2 (which Notice shall be accompanied by a copy of the
----------------------
applicable mortgage or lease), no notice from Tenant to Landlord as to the
Leased Property shall be effective unless and until a copy of the same is
delivered in accordance with the terms of Section 22.10 to such Hotel Mortgagee
-------------
or ground lessor, unless not otherwise required in the applicable mortgage or
lease, at the address set forth in the above described Notice, and the curing of
any of Landlord's defaults by such Hotel Mortgagee or ground lessor shall be
treated as performance by Landlord.
ARTICLE 21
----------
ADDITIONAL COVENANTS OF TENANT
------------------------------
21.1 Prompt Payment of Indebtedness. Tenant shall (a) pay or cause
---- ------------------------------
to be paid when due all payments on Tenant's Indebtedness and shall not permit
or suffer any such Indebtedness to become or remain in default beyond any
applicable grace or cure period, (b) pay or cause to be paid when due all lawful
claims for labor and rents, (c) pay or cause to be paid when due all trade
payables and (d) pay or cause to be paid when due all other of Tenant's
Indebtedness upon which it is or becomes obligated, except, in each case, other
than that referred to in clause (a), to the extent payment is being contested in
good faith by appropriate proceedings in accordance with Article 8 and if Tenant
---------
shall have set aside on its books adequate reserves with respect thereto in
accordance with GAAP, if appropriate, or unless and until foreclosure, distraint
sale or other similar proceedings shall have been commenced.
21.2 Intentionally Omitted.
---- ----------------------
21.3 Notice of Litigation, Etc. Tenant shall give prompt Notice to
---- --------------------------
Landlord of any litigation or any administrative proceeding to which Tenant may
hereafter become a party of which Tenant has notice or actual knowledge which
involves a potential liability equal to or greater than Fifty Thousand Dollars
($50,000.00) or which may otherwise result in any material adverse change in the
business, operations, property, results of operation or financial condition of
Tenant. Forthwith upon Tenant obtaining knowledge of any event or condition
that would be required to be disclosed in a current report filed by Tenant on
Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were
required to file such reports under the Securities Exchange Act of 1934, as
amended, Tenant shall furnish Notice thereof to Landlord specifying the nature
and period of existence thereof and what action Tenant has taken or is taking or
proposes to take with respect thereto.
61
<PAGE>
21.4 Indebtedness of Tenant. Tenant shall not create, incur, assume
---- ----------------------
or guarantee, or permit to exist, or become or remain liable directly or
indirectly upon, any Indebtedness except the following:
(a) Indebtedness of Tenant to Landlord;
(b) Indebtedness of Tenant for Impositions, to the extent that
payment thereof shall not at the time be required to be made in
accordance with the provisions of Article 8;
---------
(c) Indebtedness of Tenant in respect of judgments or awards (i)
which have been in force for less than the applicable appeal period
and in respect of which execution thereof shall have been stayed
pending such appeal or review, (ii) which are fully covered by
insurance payable to Tenant (subject to any deductibles permitted
hereunder);
(d) Trade payables incurred in the ordinary course of business.
21.5 Financial Condition of Tenant. Tenant shall at all times be
---- -----------------------------
Solvent.
21.6 Limitation on Distributions. Tenant covenants that until
---- ---------------------------
Tenant's "net worth" exceeds the sum of (x) twenty-five percent (25%) of the
prior Fiscal Year's Rent under this Agreement and any other Participating Leases
plus (y) Minimum Working Capital it shall retain all income it receives
- ----
hereunder and shall not pay any fees to an Affiliate outside the ordinary course
of business or distribute any earnings to its beneficial owners except (a) fifty
percent (50%) of Net Cash Flow, (b) as needed for income taxes payable either by
Tenant, the shareholders of Tenant, or Partners of Tenant with respect to the
Leased Property (c) for compensation for Hotel operating expenses, (d)
management fees payable under the Management Agreement, and (e) other payments
from the Leased Property. In no event shall any amounts be payable by or to
Tenant under the foregoing clauses (b) and (c) if such payment would violate
Tenant's covenant set forth in Section 21.15 or if, at the time of such proposed
-------------
action, or immediately after giving effect thereto, any Event of Default shall
exist.
21.7 Prohibited Transactions. Tenant shall not permit to exist or
---- -----------------------
enter into any agreement or arrangement whereby it engages in a transaction of
any kind with any Affiliate of Tenant without the prior written consent of
Landlord, which consent may be withheld or granted in Landlord's reasonable
discretion.
21.8 Liens and Encumbrances. Except as permitted by Section 7.1,
---- ---------------------- -----------
Tenant shall not create or incur or suffer to be created or incurred or to exist
any Lien on this Agreement or any of Tenant's assets, properties, rights or
income, or any of its interest therein, now or at any time hereafter owned,
other than:
(a) Permitted Encumbrances; and
(b) As permitted pursuant to Section 21.4.
------------
62
<PAGE>
21.9 Merger, Sale of Assets, Etc. Except as otherwise provide herein,
---- ----------------------------
Tenant shall not (a) sell, lease (as lessor or sublessor), transfer or otherwise
dispose of, or abandon, all or any material portion of its assets (including
capital stock) or business to any Person, (b) merge into or with or consolidate
with any other Person, or (c) sell, lease (as lessor or sublessor), transfer or
otherwise dispose of, or abandon, any personal property or fixtures or any real
property; provided, however, that, notwithstanding the provisions of clause (c)
-------- -------
Tenant may dispose of equipment or fixtures which have become inadequate,
obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute
equipment or fixtures having equal or greater value and utility (but not
necessarily having the same function) have been provided.
21.10 Compliance with Franchise Agreement. If requested by Landlord,
----- -----------------------------------
Tenant shall become the Franchisee under the Franchise Agreement, if any. To
the extent any of the provisions of the Franchise Agreement impose a greater
obligation on Landlord than the corresponding provisions of this Agreement, then
Tenant shall be obligated to comply with, and to take all reasonable actions
necessary to prevent breaches or defaults under, the provisions of the Franchise
Agreement. It is the intent of the parties hereto that Tenant shall comply in
every respect with the provisions of the Franchise Agreement so as to avoid any
default thereunder during the term of this Agreement. Landlord shall not
terminate or enter into any modification of the Franchise Agreement without in
each instance first obtaining Tenant's written consent (which shall not be
unreasonably withheld or delayed). Tenant shall not terminate the Franchise
Agreement without Landlord's prior written consent which may be withheld or
granted in Landlord's sole discretion. Landlord and Tenant agree to cooperate
fully with each other in the event it becomes necessary to obtain a franchise
extension or modification or a new franchise for the Leased Property, and in any
transfer of the Franchise Agreement to Landlord or any Affiliate thereof or any
other successor to Tenant upon the termination of this Agreement.
21.11 Termination Upon Revenue Performance Shortfall, Sale, Etc. (a)
-----------------------------------------------------------
If (x) (i) with respect to any two (2) Fiscal Years during the Term, Tenant
shall fail to realize from the operation of the Hotel an amount equal to at
least ninety-five (95%) percent of the actual Gross Revenues from the preceding
Fiscal Year and (ii) the RevPAR Yield Index of the Leased Property as of the end
---
of such Fiscal Year shall have declined by more than five (5) percentage points
from the Leased Property's RevPAR Yield Index at the end of the prior Fiscal
Year or (y) (i) with respect to any Fiscal Year during the term, Tenant shall
fail to realize from the operation of the Hotel an amount equal to at least
ninety (90%) percent of the actual Gross Revenues from the preceding Fiscal Year
and (ii) the RevPAR Yield Index of the Leased Property as of the end of such
- ---
Fiscal Year shall have declined by more than five (5) percentage points from the
Leased Property's RevPAR Yield Index at the end of the prior Fiscal Year (each,
a "Revenue Performance Shortfall"), such failure shall constitute a Revenue
-----------------------------
Performance Shortfall under this Lease; provided, however, if a Force Majeure
Event has occurred, then the time period for determining a Revenue Performance
Shortfall shall be extended for a period of time equal to the time period for
which the Force Majeure Event was in effect; provided, further, however, if a
material Condemnation or Insured Casualty has occurred, then the time period for
determining a Revenue Performance Shortfall shall be extended for a period of
one (1) year from the date of substantial completion of any feasible
restoration. Notwithstanding the provisions hereof to the contrary, a Revenue
Performance Shortfall shall not occur if same is due primarily to Landlord's
failure to comply with Section 5.1.2. The existence of a Revenue Performance
-------------
Shortfall for any Fiscal Year shall be determined by Landlord on the basis of
the Officer's Certificate delivered by
63
<PAGE>
Tenant to Landlord on or before March 31 of the subsequent Fiscal Year pursuant
to the requirements of Section 3.1.2(b) and shall be subject to confirmation
-------------
pursuant to Section 3.1.2(d). Notwithstanding anything to the contrary, however,
---------------
Tenant shall have the right to cure a Revenue Performance Shortfall with respect
to any Fiscal Year during the Term hereof by paying to Landlord, at the time of
the annual reconciliation of Participating Rent pursuant to Section 3.1.2(c),
-----------------
the amount necessary during such Fiscal Year to ensure that Landlord receives
the same amount of Participating Rent as Landlord would have received had there
not been a Revenue Performance Shortfall. Landlord shall have no obligation to
repay any amount advanced by Tenant to cure a Revenue Performance Shortfall.
Nothing contained in this Section 21.11 shall be construed to alter or affect
-------------
Tenant's obligation to pay Rent as otherwise provided in this Agreement.
(b) Upon the occurrence of (i) a Revenue Performance Shortfall
(unless cured by Tenant within ten (10) days after Notice of
termination as provided in this subsection and unless caused by
casualty, Condemnation or any other cause beyond Tenant's control),
(ii) the entering into by Landlord of a bona-fide contract to sell the
Leased Property to a non-Affiliate (provided such sale actually
occurs), (iii) a Tax Law Change resulting in Landlord's determination
to terminate this Agreement, (iv) a Change of Control in Tenant (other
than as provided in Section 22.22) or a Change of Control of the
-------------
Manager without Landlord's consent (which consent will not be
unreasonably withheld), or (v) a Material Franchise Change, Landlord
shall have the right, at Landlord's option, to terminate this
Agreement upon thirty (30) days' Notice to Tenant, in which event this
Agreement and the Management Agreement shall terminate and Tenant
shall immediately surrender the Leased Property to Landlord after the
expiration of such 30 day period, and, if Tenant fails to so
surrender, Landlord shall have the right, without notice, to enter
upon and take possession of the Leased Property and to expel or remove
Tenant and its effects without being liable for prosecution or any
claim for damages therefor; and Tenant shall, and hereby agrees to,
indemnify Landlord for the total of (x) in the event that Tenant does
not promptly surrender the Leased Property, the reasonable costs of
recovering the Leased Property and all other losses, liabilities and
reasonable expenses incurred by Landlord in connection with Tenant's
failure to surrender; (y) the unpaid Rent earned as of the date of
termination, plus interest at the Overdue Rate accruing after the due
date; and (z) all other sums of money then owing by Tenant to
Landlord. Landlord's election to terminate this Agreement as a result
of a Tax Law Change shall be deemed to be a determination to
simultaneously terminate all Participating Leases and to assume the
obligations of Tenant under the Management Agreement;
21.12 Change in Operations. (a) The following events shall
--------------------
constitute changes in the operation of the Hotel ("Change in Operations") for
--------------------
the purposes of this Agreement: (i) a change in the franchisor, if any, or (ii)
the conversion of a subtenant, licensee or concessionaire to an operating
department of the Hotel or vice-versa without Landlord's consent, or (iii)
Tenant's decision to delegate or eliminate the operation of any food or beverage
operations at the Hotel, or (iv) the repositioning or expansion of the Hotel.
64
<PAGE>
(b) If Tenant desires to implement a Change in Operations,
Landlord may accept or reject such change in its sole and absolute
discretion. If Landlord does not consent to the Change in Operations,
Tenant shall not be entitled to implement the proposed Change in
Operations and this Agreement shall remain in full force and effect.
(c) Notwithstanding anything to the contrary contained herein, no
adjustment of Rent pursuant to a Change in Operations shall be
implemented without the receipt by Landlord of an opinion from its tax
counsel, satisfactory to Landlord in form and substance, that such
adjustment will not adversely affect the REIT's ability to qualify as
a real estate investment trust under the applicable provisions of the
Code.
21.13 Use of the Leased Property. Tenant covenants and agrees that
----- --------------------------
from and after the Commencement Date, and except for reasonable periods of time
required for remodeling or restoration otherwise permitted hereunder, or for a
reasonable period of time, not to exceed 15 days, after the cessation of a Force
Majeure Event, it shall continuously and without interruption use and occupy the
entire Leased Property (and not less than one hundred (100%) percent of the
Leased Property) solely for the purpose of the Permitted Use and for no other
purpose. Tenant's business in and throughout the Leased Property shall
continuously be conducted under the Tenant's, or Manager's, name, as the case
may be.
21.14 Continuing Covenants. Tenant, acknowledging that the Leased
--------------------
Property has been developed and is being maintained as a hotel consistent with
and in a manner such as to preserve the Landlord's property interest in the
Leased Property, and as a further inducement to Landlord to enter into this
Agreement, covenants and agrees with Landlord to:
(a) not abandon the Leased Property;
(b) maintain the Leased Property (except for structural repairs)
and the abutting grounds, sidewalks, roads, parking and landscaped
areas in good repair, order and condition in accordance with the
Minimum Operating Standards, except for Capital Expenditures, except
to the extent same are funded by Landlord;
(c) promptly make all necessary or desirable repairs, renewals,
replacements and additions, in accordance with the Minimum Operating
Standards, to the Leased Property except for Capital Expenditures,
except to the extent same are funded by Landlord;
(d) not commit or suffer waste with respect to the Leased
Property;
(e) operate the Leased Property in accordance with the Minimum
Operating Standards, except for Capital Expenditures, except to the
extent same are funded by Landlord, so as not to diminish the value or
integrity of the Leased Property or the value of this Agreement;
(f) not make, suffer or permit any nuisance to exist on the
Leased Property;
65
<PAGE>
(g) conduct its business in a manner consistent with the purpose
and character of the Leased Property and in accordance with the
standards for operating the type of business currently operated at the
Leased Property in a sufficient manner, consistent with the Minimum
Operating Standards, and so as to preserve the Landlord's property
interest in the Leased Property;
(h) keep the Land and Improvements clean and attractive in
appearance at all times and to keep any refuse in proper containers in
the interior of the Leased Property out of sight until the same is
removed;
(i) neither do nor suffer anything to be done or kept in or about
the Leased Property which contravenes Landlord's insurance policies or
increases the premiums therefor;
(j) adequately heat and cool the Leased Improvements;
(k) not enter into any new collective bargaining or similar
agreement without Landlord's reasonable consent, provided that such
limitation is not prohibited by applicable state or federal law;
(l) comply with the Franchise Agreement, if any, and not amend or
otherwise modify any provision thereof without Landlord's prior
written consent;
(m) not enter into a contract for goods or services (x) in an
amount greater than twenty-five thousand dollars ($25,000.00) or (y)
for a period of more than one (1) year without Landlord's prior
written consent, not to be unreasonably withheld; and
(n) not enter into a lease for any items used in the operation of
the Leased Property (x) in an amount in excess of twenty-five thousand
dollars ($25,000.00) or (y) for a period in excess of one (1) year
without Landlord's prior written consent, not to be unreasonably
withheld.
21.15 Net Worth. Tenant covenants that, from and after achieving the
----- ---------
Base Security Deposit, it shall at all times during the Term maintain a "net
worth" (the "Required Minimum Net Worth") which, together with all amounts then
--------------------------
held in the Security Deposit Account, shall be equal to no less than twenty-five
(25%) percent of the prior Fiscal Year's Rent payable under this Agreement and
the Participating Leases; provided, however, Tenant's Minimum Net Worth may be
utilized to make payments of Rent and to fund operational shortfalls under this
Agreement and the Participating Leases. For purposes hereof, "net worth" shall
mean Tenant's tangible net worth which shall be equal to the excess of Tenant's
Assets over its liabilities determined in accordance with GAAP; provided,
however, that the fair market value of Tenant's Assets and the full face amount
of all liabilities, including provision for income taxes on the appraised
increment, shall be utilized in such calculation. From and after achieving the
Base Security Deposit, Tenant shall provide Landlord with an annual written
certification of its compliance with the foregoing requirement on the first day
of each subsequent Lease Year hereunder, provided, however, that Landlord may,
in addition, request not more than once during any Lease Year that Tenant
provide Landlord with a certification as of the date of such request of
66
<PAGE>
its compliance with the foregoing requirement. Such certifications must be
reasonably satisfactory to Landlord as to matters certified therein and shall be
accompanied by such supporting financial information as Landlord may reasonably
request. Throughout the Term, Tenant's Required Minimum Net Worth (x) shall be
increased proportionately after the execution of any additional Participating
Lease in accordance therewith and (y) shall be decreased with the termination of
any Participating Leases (unless such termination results from an Event of
Default thereunder).
21.16 Other Activities. Tenant covenants, during the Term, that
----- ----------------
Tenant will not engage in any business unrelated to the operation and management
of the Hotel or otherwise permitted under any Participating Leases.
21.17 Reservation System. Tenant shall not change, modify or
----- ------------------
terminate the system for making reservations utilized at the Hotel without the
prior consent of Landlord which may be withheld or granted in Landlord's sole
discretion.
ARTICLE 22
----------
MISCELLANEOUS
-------------
22.1 Limitation on Payment of Rent. All agreements between
---- -----------------------------
Landlord and Tenant herein are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of Rent, or
otherwise, shall the Rent or any other amounts payable to Landlord under this
Agreement exceed the maximum permissible under applicable law, the benefit of
which may be asserted by Tenant as a defense, and if, from any circumstance
whatsoever, fulfillment of any provision of this Agreement, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, or if from any circumstances Landlord should ever
receive as fulfillment of such provision such an excessive amount, then, ipso
----
facto, the amount which would be excessive shall be applied to the reduction of
- -----
the installment(s) of Minimum Rent next due and not to the payment of such
excessive amount. This provision shall control every other provision of this
Agreement and any other agreements between Landlord and Tenant.
22.2 No Waiver. No failure by Landlord or Tenant to insist upon the
---- ---------
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the maximum extent permitted by law, no
waiver of any breach shall affect or alter this Agreement, which shall continue
in full force and effect with respect to any other then existing or subsequent
breach.
22.3 Remedies Cumulative. To the maximum extent permitted by law,
---- -------------------
each legal, equitable or contractual right, power and remedy of Landlord or
Tenant, now or hereafter provided either in this Agreement or by statute or
otherwise, shall be cumulative and concurrent and shall be in addition to every
other right, power and remedy and the exercise or beginning of the exercise by
Landlord or Tenant (as applicable) of any one or more of such rights, powers and
67
<PAGE>
remedies shall not preclude the simultaneous or subsequent exercise by Landlord
of any or all of such other rights, powers and remedies.
22.4 Severability. Any clause, sentence, paragraph, section or
---- ------------
provision of this Agreement held by a court of competent jurisdiction to be
invalid, illegal or ineffective shall not impair, invalidate or nullify the
remainder of this Agreement, but rather the effect thereof shall be confined to
the clause, sentence, paragraph, section or provision so held to be invalid,
illegal or ineffective, and this Agreement shall be construed as if such
invalid, illegal or ineffective provisions had never been contained therein.
22.5 Acceptance of Surrender. No surrender to Landlord of this
---- -----------------------
Agreement or of the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in writing by
Landlord and no act by Landlord or any representative or agent of Landlord,
other than such a written acceptance by Landlord, shall constitute an acceptance
of any such surrender.
22.6 No Merger of Title. It is expressly acknowledged and agreed that
---- ------------------
it is the intent of the parties that there shall be no merger of this Agreement
or of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly this Agreement or the
leasehold estate created hereby and the fee estate or ground landlord's interest
in the Leased Property.
22.7 Conveyance by Landlord. If Landlord or any successor owner of
---- ----------------------
all or any portion of the Leased Property shall convey all or any portion of the
Leased Property in accordance with the terms hereof other than as security for a
debt, and the grantee or transferee of such of the Leased Property shall
expressly assume all obligations of Landlord hereunder arising or accruing from
and after the date of such conveyance or transfer, provided Landlord has
transferred the Security Deposit and any escrows held hereunder, Landlord or
such successor owner, as the case may be, shall thereupon be released from all
future liabilities and obligations of Landlord under this Agreement with respect
to such of the Leased Property arising or accruing from and after the date of
such conveyance or other transfer and all such future liabilities and
obligations shall thereupon be binding upon the new owner.
22.8 Quiet Enjoyment. Provided that no Event of Default shall have
---- ---------------
occurred and be continuing, Tenant shall peaceably and quietly have, hold and
enjoy the Leased Property for the Term, free of hindrance or molestation by
Landlord or any Person claiming by, through or under Landlord, but subject to
(a) any Encumbrance permitted under Article 20 or otherwise permitted to be
----------
created by Landlord hereunder, (b) all Permitted Encumbrances, (c) Liens as to
obligations of Landlord that are either not yet due or which are being contested
in good faith and by proper proceedings, provided the same do not materially
interfere with Tenant's ability to operate the Hotel and (d) Liens that have
been consented to in writing by Tenant. Except as otherwise provided in this
Agreement, no failure by Landlord to comply with the foregoing covenant shall
give Tenant any right to cancel or terminate this Agreement or abate, reduce or
make a deduction from or offset against the Rent or any other sum payable under
this Agreement, or to fail to perform any other obligation of Tenant hereunder.
68
<PAGE>
22.9 Memorandum of Lease. Neither Landlord nor Tenant shall record
---- -------------------
this Agreement. However, Landlord and Tenant shall promptly, upon the request
of the other, enter into a short form memorandum of this Agreement, in form
suitable for recording under the laws of the State in which reference to this
Agreement shall be made. The parties shall share equally all costs and expenses
of recording such memorandum.
22.10 Notices.
----- -------
(a) Any and all notices, demands, consents, approvals, offers,
elections and other communications required or permitted under this
Agreement shall be given in writing and the same shall be delivered
either in hand, by telecopier with written acknowledgment of receipt,
or by mail or Federal Express or similar expedited commercial carrier,
addressed to the recipient of the notice, postpaid and registered or
certified with return receipt requested (if by mail), or with all
freight charges prepaid (if by Federal Express or similar expedited
carrier).
(b) All notices required or permitted to be sent hereunder shall
be deemed to have been given for all purposes of this Agreement upon
the date of acknowledged receipt, in the case of a notice by
telecopier and, in all other cases, upon the date of receipt or
refusal, except that whenever under this Agreement a notice is either
received on a day which is not a Business Day or is required to be
delivered on or before a specific day which is not a Business Day, the
day of receipt or required delivery shall automatically be extended to
the next Business Day.
(c) All such notices shall be addressed,
if to Landlord to:
c/o LaSalle Hotel Advisors
220 East 42nd Street
New York, New York 10017
Attention: Chief Operating Officer
Telecopier: (212) 687-8170
with a copy to:
LaSalle Partners
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Chief Financial Officer
and with a copy to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
69
<PAGE>
Attn: Lee S. Saltzman, Esq.
Telecopier No.: (212) 839-5599
if to Tenant to:
LaSalle Hotel Lessee, Inc.
c/o LaSalle Hotel Advisers
220 East 42nd Street
New York, New York 10017
Attn: Chief Operating Officer
with a copy to:
Hagan & Associates
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Robert K. Hagan, Esq.
(d) By notice given as herein provided, the parties hereto and
their respective successors and assigns shall have the right from time
to time and at any time during the term of this Agreement to change
their respective addresses effective upon receipt by the other parties
of such notice and each shall have the right to specify as its address
any other address.
22.11 Construction. Anything contained in this Agreement to the
----- ------------
contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination or expiration of this
Agreement with respect to the Leased Property shall survive such termination or
expiration. In no event shall Landlord or Tenant be liable for any
consequential damages suffered by the other as the result of a breach of this
Agreement. Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated except by an instrument in writing signed by
the party to be charged. All the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Each term or provision of this Agreement to
be performed by Tenant shall be construed as an independent covenant and
condition. Time is of the essence with respect to the exercise of any rights of
Tenant and Landlord under this Agreement. Except as otherwise set forth in this
Agreement, any obligations of Tenant (including without limitation, any
monetary, repair and indemnification obligations) and Landlord shall survive the
expiration or sooner termination of this Agreement.
22.12 Counterparts, Headings. This Agreement may be executed in two
----- ----------------------
or more counterparts, each of which shall constitute an original, but which,
when taken together, shall constitute but one instrument and shall become
effective as of the date hereof when copies hereof, which, when taken together,
bear the signatures of each of the parties hereto shall have been signed.
Headings in this Agreement are for purposes of reference only and shall not
limit or affect the meaning of the provisions hereof.
22.13 Applicable Law, Etc. This Agreement shall be interpreted,
----- ---------------------
construed, applied and enforced in accordance with the laws of the State
applicable to contracts between residents of the
70
<PAGE>
State which are to be performed entirely within the State, regardless of: (a)
where this Agreement is executed or delivered; (b) where any payment or other
performance required by this Agreement is made or required to be made; (c) where
any breach of any provision of this Agreement occurs, or any cause of action
otherwise accrues; (d) where any action or other proceeding is instituted or
pending; (e) the nationality, citizenship, domicile, principal place of
business, or jurisdiction of organization or domestication of any party; (f)
whether the laws of the forum jurisdiction otherwise would apply the law of a
jurisdiction other than the State; or (g) any combination of the foregoing.
22.14 Right to Make Agreement. Each party warrants, with respect to
----- -----------------------
itself, that neither the execution of this Agreement, nor the consummation of
any transaction contemplated hereby, shall violate any provision of any law, or
any judgment, writ, injunction, order or decree of any court or governmental
authority having jurisdiction over it; nor result in or constitute a breach or
default under any indenture, contract, other commitment or restriction to which
it is a party or by which it is bound; nor require any consent, vote or approval
which has not been given or taken, or at the time of the transaction involved
shall not have been given or taken. Each party covenants that it has and will
continue to have throughout the term of this Agreement and any extensions
thereof, the full right to enter into this Agreement and perform its obligations
hereunder.
22.15 Transition Procedures. Upon the expiration or termination of
----- ---------------------
the Term of this Agreement, for whatever reason, Landlord and Tenant shall do
the following (and the provisions of this Section 22.15 shall survive the
-------------
expiration or termination of this Agreement until they have been fully
performed) and, in general, shall cooperate in good faith to effect an orderly
transition of the Hotel. Nothing contained herein shall limit Landlord's rights
and remedies under this Agreement if such termination occurs as the result of an
Event of Default.
(a) Transfer of Licenses. Upon the expiration or earlier
--- --------------------
termination of the Term, Tenant shall use its reasonable efforts (i)
to transfer to Landlord or Landlord's nominee all licenses, operating
permits and other governmental authorizations and all contracts,
including contracts with Government Agencies that may be necessary for
the operation of the Hotel (collectively, "Licenses") or (ii) if such
--------
transfer is prohibited by law or Landlord otherwise elects, to
cooperate with Landlord or Landlord's nominee in connection with the
processing by Landlord or Landlord's nominee of any applications for
the transfer of all Licenses; provided, in either case, that the costs
and expenses of any such transfer or the processing of any such
application shall be paid by Landlord or Landlord's nominee.
(b) Leases and Concessions. Tenant shall assign to Landlord or
--- ----------------------
Landlord's nominee simultaneously with the termination of this
Agreement, all leases and concession agreements in effect with respect
to the Hotel then in Tenant's or Manager's name.
(c) Books and Records. To the extent that Landlord has not
--- -----------------
already made or received copies thereof, all books and records
(including computer records) for the Hotel kept by Tenant pursuant to
Section 17.2 shall be promptly
71
<PAGE>
made available to Landlord or Landlord's nominee for photocopying or
other duplication.
(d) Receivables and Payables, etc. Except with respect to
------------------------------
Minimum Working Capital, Tenant shall be entitled to retain all cash,
bank accounts and house banks, and to collect all Gross Revenues and
accounts receivable accrued through the termination date. Tenant
shall be responsible for the payment of Rent, all Gross Operating
Expenses of the Hotel and all other obligations of Tenant accrued
under this Agreement as of the termination date, and Landlord shall be
responsible for all operating expenses of the Hotel accruing after the
termination date.
22.16 Complimentary Rooms. Tenant shall make available (to the
-------------------
extent that same have not otherwise been committed) "deluxe" or "superior" guest
rooms and all related goods and services, including, without limitation, food
and beverages, telephones and facsimile services on a no-cost complimentary
basis to employees, advisors, consultants, trustees and members of the board of
directors of the REIT or the Landlord who are visiting the Hotel in connection
with the operations of the Leased Property or doing business in the State
related to the Leased Property, and as reasonably necessary for the conduct of
such business.
22.17 Intentionally Deleted.
---------------------
22.18 Incorporation of Prior Agreements. This Agreement and the
---------------------------------
attached exhibits set forth all the agreements, terms, covenants and conditions
between Landlord and Tenant concerning the Leased Property and there are no
agreements, terms, covenants or conditions, oral or written, between them other
than those herein contained. No amendment, change or addition to this Agreement
shall be binding upon Landlord or Tenant unless it is in writing and signed by
each party.
22.19 Attorney's Fees. If either Landlord or Tenant retains an
---------------
attorney to enforce the terms of or determine rights under this Agreement, the
prevailing party shall be entitled to recover reasonable costs, attorney's fees
and expenses.
22.20 Early Termination. (a) Upon the sale of the Leased Property by
-----------------
Landlord to a third party who is not related to or affiliated with Landlord
(except as to any loan arrangement between Landlord, as lender, and such third
party, as borrower), Landlord may elect to terminate this Agreement provided
that Tenant is afforded no less than thirty (30) days advance written notice
from Landlord of such termination. Upon a Change of Control of Landlord,
Tenant may elect to terminate this Agreement provided that Landlord is afforded
no less than thirty (30) days advance written notice from Tenant of such
termination.
(b) As compensation for the early termination of Tenant's
leasehold estate under this Section 22.20, Landlord shall pay to
-------------
Tenant the present value of a stream of monthly payments of Monthly
Cash Flow for fifty (50%) percent of the number of complete months
remaining in the unexpired Term as of the date of closing of the sale,
discounted at a rate of ten (10%) percent per annum. For the purposes
of this Section, "Monthly Cash Flow" shall mean the average, for each
-----------------
72
<PAGE>
of the twelve complete Accounting Periods preceding the date of
termination of this Agreement, of the excess of the Gross Revenues
over the sum of the Rent and Gross Operating Expenses (including any
and all expenses and fees payable under the Management Agreement)
attributable to such Accounting Periods.
22.21 Governing Law. Submission to Jurisdiction. This Agreement is
----- -------------
or will be made and delivered in the State and shall be governed by and
construed and interpreted in accordance with the laws of the United States of
America and the State, without regard to principles of conflict of laws. All
judicial actions, suits or proceedings brought by or against Tenant with respect
to its rights, obligations, liabilities or any other matter under or arising out
of or in connection with this Agreement or any transaction contemplated hereby
or for recognition or enforcement of any judgment rendered in any such
proceedings shall be brought by Tenant, and may be brought by Landlord, in any
state court or federal court in the State. By execution and delivery of this
Agreement, Tenant accepts, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any
final judgment rendered thereby in connection with this Agreement or any
transaction contemplated hereby from which no appeal has been taken or is
available. Tenant hereby irrevocably waives any objections, including without
limitation any objection to the laying of venue or based on the grounds of forum
-----
non conveniens, which it may now or hereafter have to the bringing of any such
- --- ----------
action or proceeding in any such jurisdiction. Nothing herein shall affect the
right of Landlord to bring any action, suit or proceeding against Tenant in the
court of any jurisdiction. Tenant acknowledges that final judgment against it
in any action suit or proceeding referred to in this Section shall be conclusive
and may be enforced in any other jurisdiction by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the same.
22.22 Change of Control of Tenant. If, during the Term, any Parent
---------------------------
or Affiliate (each a "Transferor") of Tenant has elected to transfer its
----------
interest in Tenant to a third party which is not an Affiliate of Tenant which,
for the purposes of this Agreement shall only be permitted (i) in conjunction
with the sale of all, or substantially all, of Transferor's hotel management
businesses and (ii) with the consent of Landlord, not to be unreasonably
withheld, conditioned or delayed (a "Permitted Transfer"), then such Permitted
------------------
Transfer shall be made only upon the following terms and conditions:
(a) Transferor shall give written notice of the proposed
Permitted Transfer to Landlord (the "Sale Notice");
-----------
(b) Landlord shall have thirty (30) days from the date of receipt
of the Sale Notice to provide Transferor with written notice (the
"Purchase Notice") of Landlord's intention to purchase, in Landlord's
---------------
name or in the name of Landlord's designee, Transferor's interest in
Tenant at the then Fair Market Value of such interest (the
"Purchase");
--------
(c) If Landlord elects to make the Purchase, then any parties
holding remaining interests in Tenant (each a "Third Party") shall
-----------
have the right, but not the obligation, to require Landlord to
purchase (the "Required Purchase") such remaining interests in the
-----------------
Tenant at the then Fair Market Value of such interests by delivering
to Landlord, no later than fifteen (15) days from Transferor's receipt
73
<PAGE>
of the Purchase Notice, written notice (the "Third Party Notice") of
------------------
such Third Party's Required Purchase election;
(d) If any Third Party fails to exercise its Required Purchase
election as provided in subparagraph (c) above, then such Third Party
shall be deemed to have unconditionally consented to (i) the admission
of Landlord as a [limited][general] partner in Tenant and (ii) the
amendment of Tenant's partnership agreement to provide that said
remaining Third Party shall not transfer its interests in Tenant
except as provided for in this Section 22.22;
-------------
(e) The closing of the Purchase, and, if applicable, the Required
Purchase, shall occur within sixty (60) days from the later to occur
of (x) delivery of the Sale Notice or (y) delivery of the Third Party
Notice;
(f) If the parties fail to agree on the Fair Market Value of the
respective interests in Tenant, the matter shall be referred to
arbitration as provided for in Article 23; provided, however, unless
----------
and until the Fair Market Value of the respective interests in Tenant
have been fully determined, Landlord shall have no obligation to
complete the Purchase or the Required Purchase.
22.23 Intentionally Deleted.
----- ---------------------
ARTICLE 23
----------
ARBITRATION
-----------
23.1 Arbitration. In each case specified in this Agreement in
---- -----------
which it shall become necessary to resort to arbitration, such arbitration shall
be determined as provided in this Section 23.1. The party desiring such
------------
arbitration shall give Notice to that effect to the other party and an
arbitrator shall be selected by mutual agreement of the parties, or if they
cannot agree within thirty (30) days of such notice, by appointment made by the
American Arbitration Association ("AAA") from among the members of its panels
---
who are qualified and who have experience in resolving matters of a nature
similar to the matter to be resolved by arbitration.
23.2 Intentionally Omitted.
---- ----------------------
23.3 Arbitration Procedures. In any arbitration commenced pursuant to
---- ----------------------
Article 23, a single arbitrator shall be designated and shall resolve the
- ----------
dispute. The arbitrator's decision shall be binding on all parties and shall
not be subject to further review or appeal except as otherwise allowed by
applicable law. To the maximum extent practicable, the arbitrator and the
parties, and the AAA, if applicable, shall take any action necessary to insure
that the arbitration shall be concluded within ninety (90) days of the filing of
such dispute. The fees and expenses of the arbitrator shall be shared equally
by Landlord and Tenant. Unless otherwise agreed in writing by the parties or
selected by the arbitrator or AAA, if applicable, arbitration proceedings
hereunder shall be conducted in the State. Notwithstanding formal rules of
evidence, each party may
74
<PAGE>
submit such evidence as each party deems appropriate to
support its position and the arbitrator shall have access to and the right to
examine all books and records of Tenant and Landlord regarding the Hotel during
the arbitration.
75
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument as of the date above first written.
LANDLORD:
LASALLE HOTEL OPERATING
PARTNERSHIP, L.P.
By: LASALLE HOTEL PROPERTIES,
its General Partner
Name:____________________________________________
Title:
____________________________________________
TENANT:
LASALLE HOTEL LESSEE, INC.
By: , its
_____________________________________
By: ______________________________________________
Name:____________________________________________
Title:
___________________________________________
76
<PAGE>
ACKNOWLEDGMENT
STATE OF _______________)
) SS.:
COUNTY OF _____________)
On the ____ day of _____________, 1998, before me personally came
______________________________ to me known to be the individual residing at
_________________________________ who executed the foregoing instrument, and
who, being duly sworn by me, did depose and say that he is the ________________
of _______________, a ___________________ corporation, and that he has authority
to sign the same, and acknowledged that he executed the same as the act and deed
of said corporation.
Sworn to before me this ___ day
of _______________, 1998
___________________________________
NOTARY PUBLIC
77
<PAGE>
ACKNOWLEDGMENT
STATE OF _______________)
) SS.:
COUNTY OF _____________)
On the ____ day of ______________, 1998, before me personally came
______________________________ to me known to be the individual residing at
_________________________________ who executed the foregoing instrument, and
who, being duly sworn by me, did depose and say that he is the ________________
of _______________, a ___________________ corporation, and that he has authority
to sign the same, and acknowledged that he executed the same as the act and deed
of said corporation.
Sworn to before me this ___ day
of _________, 1998
___________________________________
NOTARY PUBLIC
78
<PAGE>
EXHIBIT A
---------
Initial Reserve Fund Payment:**[LaGuardia -- $0]**[Sea View --
- ----------------------------
$3,691,750]**[Omaha -- $656,002]**
Manager: Marriott Hotel Services, Inc.
- -------
Minimum Rent: **[LaGuardia -- $394,167]**[Sea View -- $391,667]**[Omaha --
- ------------
$217,917]** per month.
Expiration Date: April 30, 2008
- ---------------
Participating Rent: Participating Rent shall be an amount calculated by the
- ------------------
following formula (the "Revenues Computation"):
--------------------
For any Fiscal Quarter, Participating Rent shall equal:
The amount equal to the Quarterly Revenues Computation (defined below)
less
the amount equal to the Participating Rent previously paid for the
Lease Year to date
less
the amount equal to the Minimum Rent previously paid for the Lease
Year to date.
less
the amount paid for the Lease Year to date to Landlord pursuant to
that certain Note, dated the date hereof, executed by Tenant in favor
of Landlord with respect to the acquisition by Tenant of Tenant's
Personal Property, Minimum Inventory and Working Capital.
All calculations required to determine Participating Rent shall be prepared in
accordance with GAAP and the Uniform System of Accounts.
For purposes of defining the Quarterly Revenues Computation:
A-1
79
<PAGE>
(i) "Cumulative Quarterly Portion" shall mean a fraction having as
----------------------------
its numerator the total number of Fiscal Quarters (including partial
Fiscal Quarters) in a Lease Year which have elapsed prior to the
Fiscal Quarter in which a payment of quarterly Participating Rent is
due, and having as its denominator the total number of Fiscal Quarters
(including partial Fiscal Quarters) in the Lease Year. For example,
the Cumulative Quarterly Portion in a four-quarter Lease Year for the
quarterly Participating Rent payment due on the twentieth day of April
will be 1/4 and for the quarterly Participating Rent payment due on
the twentieth day of July will be 2/4, and such progression shall
continue for each successive Fiscal Quarter so that the Cumulative
Quarterly Portion for the quarterly Participating Rent payment due on
the twentieth day of January of the next Lease Year will be 4/4 or
100%.
(ii) "First Tier Room Revenues Percentage", "Second Tier Room
Revenues Percentage", "Third Tier Room Revenues Percentage", "First
Tier Food and Beverage Sales Percentage", "Second Tier Food and
Beverage Sales Percentage", "Third Tier Food and Beverage Sales
Percentage", "First Tier Telephone Revenues Percentage", "Second Tier
Telephone Revenues Percentage", "Third Tier Telephone Revenues
Percentage", **[Sea View --"First Tier Golf Sales Percentage", "Second
Tier Golf Sales Percentage", "Third Tier Golf Sales Percentage",]**
"First Tier Other Income Percentage", "Second Tier Other Income
Percentage", and "Third Tier Other Income Percentage", shall mean the
percentages corresponding to each of such terms as set forth on
Schedule 1.
(iii) "Annual Room Revenues First Break Point" and "Annual Room
-------------------------------------- -----------
Revenues Second Break Point" shall mean the amount of annual Room
---------------------------
Revenues corresponding to each of such terms as set forth on Schedule
--------
1.
-
(iv) "Annual Food and Beverage Sales First Break Point" and "Annual
------------------------------------------------ ------
Food and Beverage Sales Second Break Point" shall mean the amount of
------------------------------------------
annual Food Sales and Beverage Sales corresponding to each of such
terms as set forth on Schedule 1.
----------
(v) "Annual Telephone Revenues First Break Point" and "Annual
------------------------------------------- ------
Telephone Revenues Second Break Point" shall mean the amount of annual
-------------------------------------
Telephone Revenues corresponding to each of such terms as set forth on
Schedule 1.
----------
** Sea View -- (vi) **[Sea View -- (vi) "Annual Golf Sales First
-----------------------
Break Point" and "Annual Golf Sales Second Break Point" shall mean the
----------- ------------------------------------
amount of annual Golf Sales corresponding to each of such terms as set
forth on Schedule 1.]**
----------
A-2
<PAGE>
(vii) "Annual Other Income First Break Point" and "Annual Other
------------------------------------- ------------
Income Second Break Point" shall mean the amount of annual Other
-------------------------
Income corresponding to each of such terms as set forth on Schedule 1.
----------
The "Quarterly Revenues Computation" shall be the amount obtained
------------------------------
by adding, for the applicable Lease Year, (i) an amount equal to the
First Tier Room Revenues Percentage of all year to date Room Revenues
up to (but not exceeding) the Cumulative Quarterly Portion of the
Annual Room Revenues First Break Point, (ii) an amount equal to the
Second Tier Room Revenues Percentage of all year to date Room Revenues
in excess of the Cumulative Quarterly Portion of the Annual Room
Revenues First Break Point up to (but not exceeding) the Cumulative
Quarterly Portion of the Annual Room Revenues Second Break Point,
(iii) an amount equal to the Third Tier Room Revenues Percentage of
all year to date Room Revenues in excess of the Cumulative Quarterly
Portion of the Annual Room Revenues Second Break Point, (iv) an amount
equal to the First Tier Food and Beverage Sales Percentage of the
Cumulative Quarterly Portion of all year to date Food Sales and
Beverage Sales up to (but not exceeding) the Cumulative Quarterly
Portion of the Annual Food and Beverage Sales First Break Point, (v)
an amount equal to the Second Tier Food and Beverage Sales Percentage
of all year to date Food Sales and Beverage Sales up to (but not
exceeding) the Cumulative Quarterly Portion of the Annual Food and
Beverage Sales Second Break Point, (vii) an amount equal to the Third
Tier Food and Beverage Sales Percentage of all year to date Food Sales
and Beverage Sales in excess of the Cumulative Quarterly Portion of
the Annual Food and Beverage Sales Second Break Point, (viii) an
amount equal to the First Tier Telephone Revenues Percentage of all
year to date Telephone Revenues up to (but not exceeding) the
Cumulative Quarterly Portion of the Annual Telephone Revenues First
Break Point, (ix) an amount equal to the Second Tier Telephone
Revenues Percentage of all year to date Telephone Revenues in excess
of the Cumulative Quarterly Portion of the Annual Telephone Revenues
First Break Point (x) an amount equal to the Third Tier Telephone
Revenues Percentage of all year to date Telephone Revenues in excess
of the Cumulative Quarterly Portion of the Annual Telephone Revenues
Second Break Point, an amount equal to the First Tier Other Income
Percentage of all year to date revenues from Other Income up to (but
not exceeding) the Cumulative Quarterly Portion of the Annual Other
Income First Break Point, **[Sea View -- (xi) an amount equal to the
First Tier Golf Sales Percentage of the Cumulative Quarterly Portion
of all year to date Golf Sales up to (but not exceeding) the
Cumulative Quarterly Portion of the Annual Golf Sales First Break
Point, (xii) an amount equal to the Second Tier Golf Sales Percentage
of all year to date Golf Sales up to (but not exceeding) the
Cumulative Quarterly Portion of the Annual Golf Sales Second Break
Point, (xiii) an amount equal to the Third Tier Golf Sales Percentage
of all year to date Golf Sales in excess of the Cumulative Quarterly
Portion of the Annual Golf Sales Second Break Point,]** (xiv) an
amount equal to the Second Tier Other Income Percentage of all year to
date Other Income in excess of the Cumulative Quarterly Portion of the
Annual Other Income First Break Point, and (xv) an amount equal to the
First Tier Other Income Percentage of all year to date revenues from
Other Income up to (but not exceeding) the Cumulative Quarterly
Portion of the Annual Other Income First Break Point, and (xvi) an
amount equal to the Third Tier Other Income Percentage of all year to
A-3
<PAGE>
date Other Income in excess of the Cumulative Quarterly Portion of the
Other Income Second Break Point.
If the Term begins or ends in the middle of a calendar year, then the
number of Fiscal Quarters falling within the Term during such calendar year
shall constitute a separate Lease Year, and, in such event, the Cumulative
Quarterly Portion for each of the Fiscal Quarters in such partial Lease Year
shall mean a fraction having as its numerator the actual number of days elapsed
in such partial Lease Year prior to the Fiscal Quarter in which a payment of
Participating Rent is due, and having as its denominator , three hundred sixty
five (365).
A-4
<PAGE>
Schedule 1
----------
[LAGUARDIA]
First Tier Room
Revenue Percentage 20%
Annual Room Revenues
First Break Point: $14,750,000
Second Tier Room
Revenue Percentage: 68%
Annual Room Revenues
Second Break Point: $19,000,000
Third Tier Room
Revenues Percentage: 70%
First Tier Food and
Beverage Sales
Percentage: 15%
Annual Food and
Beverage Sales
First Break Point: $ 6,500,000
Second Tier Food and
Beverage Sales
Percentage: 20%
Annual Food and Beverage
Sales Second Break Point: $ 8,000,000
Third Tier Food and
Beverage Sales Percentage: 25%
First Tier Telephone
Revenue Percentage 15%
Annual Telephone
Revenue First Break Point $ 400,000
1-1
<PAGE>
Second Tier Telephone
Revenue Percentage 20%
Annual Telephone Revenue
Second Break Point $ 520,000
Third Tier Telephone
Revenue Percentage 25%
First Tier Other
Income Percentage 15%
Annual Other Income
First Break Point $ 450,000
Second Tier Other
Income Percentage 20%
Annual Other Income
Second Break Point $ 800,000
Third Tier Other
Income Percentage 25%
1-2
<PAGE>
Schedule 1
----------
[SEAVIEW]
First Tier Room
Revenue Percentage 11%
Annual Room Revenues
First Break Point: $ 7,650,000
Second Tier Room
Revenue Percentage: 60%
Annual Room Revenues
Second Break Point: $14,000,000
Third Tier Room
Revenues Percentage: 69%
First Tier Food and
Beverage Sales Percentage: 10%
Annual Food and Beverage
Sales First Break Point: $ 8,800,000
Second Tier Food and
Beverage Sales Percentage: 40%
Annual Food and
Beverage Sales
Second Break Point: $10,500,000
Third Tier Food and
Beverage Sales Percentage: 45%
First Tier Telephone
Revenue Percentage 20%
Annual Telephone
Revenue First Break Point $ 300,000
Second Tier Telephone
Revenue Percentage 25%
Annual Telephone
Revenue Second Break
Point $ 400,000
1-3
<PAGE>
Third Tier Telephone
Revenue Percentage 50%
First Tier Golf
Revenues Percentage 20%
Annual Golf Revenues
First Break Point $ 4,200,000
Second Tier Golf
Revenues Percentage 35%
Annual Golf Revenues
Second Break Point $ 5,000,000
Third Tier Golf
Revenues Percentage 50%
First Tier Other
income Percentage 20%
Annual Other Income
First Break Point $ 510,000
Second Tier Other
Income Percentage 50%
Annual Other Income
Second Break Point $ 600,000
Third Tier Other
Income Percentage 50%
1-4
<PAGE>
Schedule 1
----------
[OMAHA]
First Tier Room
Revenue Percentage 20%
Annual Room Revenues
First Break Point: $7,000,000
Second Tier Room
Revenue Percentage: 60%
Annual Room Revenues
Second Break Point: $8,970,000
Third Tier Room
1-5
<PAGE>
Revenues Percentage: 65%
First Tier Food and
Beverage Sales Percentage: 20%
Annual Food and Beverage
Sales First Break Point: $3,430,000
Second Tier Food and
Beverage Sales Percentage: 35%
Annual Food and Beverage
Sales Second Break Point: $4,560,000
Third Tier Food and
Beverage Sales Percentage: 45%
First Tier Telephone
Revenue Percentage 20%
Telephone Revenue
First Break Point $ 180,000
Second Tier Telephone
Revenue Percentage 30%
Annual Telephone Revenue
Second Break Point $ 205,000
Third Tier Telephone
Revenue Percentage 35%
First Tier Other Income
Percentage 20%
Annual Other Income
First Break Point $ 295,000
Second Tier Other
Income Percentage 30%
Annual Other Income
Second Break Point $ 380,000
Third Tier Other
Income Percentage 35%
1-6
<PAGE>
EXHIBIT B
---------
[Hotel Standards]
B-1
<PAGE>
EXHIBIT C
---------
[Minimum Inventory]
C-1
<PAGE>
EXHIBIT D
- ---------
[Minimum Working Capital]
D-1
<PAGE>
EXHIBIT E
- ---------
The Land
- --------
E-1
<PAGE>
Exhibit F
---------
SECURITY DEPOSIT
----------------
The Security Deposit shall have an aggregate Current Market Value equal to
twenty-five (25%) percent of the Rent for the prior Fiscal Year, which shall
constitute the Security Deposit (the "Base Security Deposit"). From and after
---------------------
the time when Tenant shall have deposited the Base Security Deposit with
Landlord, and annually throughout the Term, Landlord shall determine the then
Current Market Value of the Security Deposit. If the Current Market Value of
the Security Deposit is less than twenty (20%) percent of the Rent for the prior
Lease Year, Tenant shall make deposits with Landlord, in accordance with the
provisions of Section 15.1, until the Security Deposit will have a Current
------------
Market Value equal to twenty-five (25%) percent of the Rent for the prior Lease
Year. Throughout the Term, irrespective of the then Current Market Value of the
Security Deposit, Tenant shall have no right to withdraw, substitute, or
otherwise replace the Security Deposit
-------
F-1
<PAGE>
EXHIBIT 10.17
SUPPLEMENTAL REPRESENTATIONS,
-----------------------------
WARRANTIES AND INDEMNITY AGREEMENT
----------------------------------
THIS SUPPLEMENTAL REPRESENTATIONS AND WARRANTIES AGREEMENT (the
"Agreement") is made and entered into as of _____ __, 1998 by **[LaSalle Plaza
Park Limited Partnership]** **[LaSalle Seaview, L.P.]** **[LaSalle LRP
Bloomington Limited Partnership]** **[LaSalle LRP Dallas Hotel Limited
Partnership]** **[LaSalle LRP New Orleans Hotel Limited Partnership]**
**[LaSalle LRP Key West Hotel Investors Limited Partnership]** **[LaSalle Le
Montrose Limited Partnership]** **[LaSalle Sabal Plaza Limited Partnership]**
**[LaSalle Omaha Hotel Investors Limited Partnership]** **[LaSalle Hotel Co-
Investment, Inc.]** ("Indemnitor"), LaSalle Hotel Operating Partnership, L.P., a
Delaware limited partnership (the "Operating Partnership") and LaSalle Hotel
Properties, a Maryland real estate investment trust (the "REIT"). Capitalized
terms used herein without definition shall have the meaning ascribed to such
terms in that certain Omnibus Contribution Agreement dated as of _________ __,
1998 (the "Contribution Agreement") by and among the Operating Partnership, the
Indemnitor and others named therein.
WHEREAS, in connection with an initial public offering of common shares of
beneficial interest of the REIT (the "IPO"), the Indemnitor and certain other
persons will transfer to the Operating Partnership their direct and indirect
equity interests in the Asset Entity and the Property (each as hereinafter
defined) upon the exercise by the Operating Partnership of options granted to it
by the Indemnitor pursuant to the Contribution Agreement and by certain third
parties (collectively, the "Grantors" and individually, a "Grantor") pursuant to
certain Contribution Agreements (the "Grantor Agreements") (all of the foregoing
transfers being collectively referred to herein as the "Transactions"); and
WHEREAS, to induce the REIT to consummate the IPO and to induce the
Operating Partnership to exercise the options granted to it pursuant to the
Contribution Agreement, Indemnitor has agreed to make the representations and
warranties contained in this Agreement for the benefit of the REIT and the
Operating Partnership, on the condition that the individual liability of such
Indemnitor for any breach of such representations and warranties be limited as
provided herein.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby agree as follows:
1. Representations and Warranties with Respect to the Property and
---------------------------------------------------------------
Indemnitor. Indemnitor hereby makes the following representations and
- -----------
warranties as of the date hereof, as of the date of the Initial Closing and as
of the date of the Final Closing with respect to the property set forth on
Exhibit A hereto, including all personal property related thereto or to the
- ---------
operation thereof (collectively, the "Property") and all property management
agreements set forth on Exhibit B hereto (the "Corporate Assets"). Such
---------
representations and warranties, other than those contained in Section 2.3
hereto, are deemed modified in full to the extent any specific statement of fact
in the REIT's Registration Statement on Form S-ll (Registration No. 333 -
<PAGE>
[_____], as amended (the "Registration Statement")), conflicts with any similar
statement of fact contained in such representations and warranties.
1.1 Organization and Qualification. Indemnitor is a **[limited
------------------------------
partnership]** **[corporation]**, duly formed and validly existing and in good
standing under the laws of its jurisdiction of organization, and has the
requisite power and authority to carry on its business as it is now being
conducted and, if applicable, to engage in the Transactions to which it is a
party. Indemnitor has made available to the Operating Partnership or the REIT
complete and correct copies of its governing instruments, together with all
amendments thereto, as in effect on the date of this Agreement. Indemnitor is
duly qualified or registered to transact business in each jurisdiction in which
such qualification or registration is required, whether by reason of the
ownership or leasing of property, the management of properties owned by others
or the conduct of business, except where the failure to so qualify would not
have a material adverse effect on the condition (financial or otherwise) or the
earnings, assets, business affairs or business prospects of such entity.
1.2 Authority Relative to Contribution Agreement. All action of
--------------------------------------------
Indemnitor necessary to authorize the execution, delivery and performance by
such Indemnitor of the Contribution Agreement has been taken, and no other
proceedings on the part of Indemnitor is necessary to authorize (i) the
execution and delivery by Indemnitor (or by any attorney-in-fact for such
Indemnitor appointed pursuant to the Contribution Agreement (an "Attorney-in-
Fact")), of the Contribution Agreement and the assignment of partnership
interests and other deliveries contemplated thereby or (ii) the consummation by
such Indemnitor (directly or through an Attorney-in-Fact) of the Transactions to
which it is a party. Neither the execution and delivery Indemnitor (directly or
through an Attorney-in-Fact) of any of the Contribution Agreements to which it
is a party, nor the consummation by such Indemnitor (directly or through an
Attorney-in-Fact) of the Transactions to which it is a party, nor compliance by
such Indemnitor (directly or through an Attorney-in-Fact) with any of the
provisions of the Contribution Agreement to which it is a party will (i)
conflict with or result in any breach of any provisions of the governing
instruments of such Indemnitor, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions, or provisions of any of the organizational documents
of the Indemnitor or of any note, bond, mortgage, indenture, lease, license,
easement, restriction, contract, agreement or other instrument or obligation to
which such Indemnitor is a party or by which any of the foregoing or any of
their respective properties or other assets may be bound, or (iii) violate any
order, writ, injunction, law, decree, statute, agreement, rule or regulation
applicable to Indemnitor or the Property except in the case of (ii) or (iii) for
violations, breaches or defaults which would not, singly or in the aggregate,
have a material adverse effect on the business or financial condition of
Indemnitor, the Property or the Transactions.
1.3 Consents Obtained; Binding Obligation; Absence of Undisclosed
-------------------------------------------------------------
Liabilities. Upon consummation of the assignments and other transactions
- -----------
contemplated by the Contribution Agreement and the Grantor Agreements, the
Operating Partnership will acquire, directly or indirectly, good, marketable and
valid title to 100% of the ownership interests in the Asset Entity, free and
clear of any liens, encumbrances, debts, liabilities or obligations, direct or
<PAGE>
indirect, contingent or non-contingent, and matured or unmatured with respect to
such ownership interests in the Asset Entity (collectively, "Liabilities").
1.4 Brokers. Indemnitor, nor any general partner, officer or
--------
director of Indemnitor, has employed any broker or finder, or incurred any
liability therefor, in connection with the Transactions to which it is a party.
1.5 Ownership. Except as disclosed in the Registration Statement,
----------
Indemnitor has not granted to any person (other than pursuant to the
Contribution Agreement) any option, warrant or other right to acquire any
interest in the Asset Entity or the Property or, if such Indemnitor is a limited
partnership, corporation, or trust, in such Indemnitor, and, to the knowledge of
Indemnitor, no other person or entity has granted to any person any option,
warrant or other right to acquire any interest in the Asset Entity, Grantor or
the Property (in each case, other than options, warrants or other rights of
third parties that have been duly waived or released).
1.6 Assets. Except as reflected in the Contribution Agreement or on
-------
Schedule 1.6 attached hereto, Indemnitor does not own any assets other than its
- ------------
interest in the Corporate Assets and the interest in the Property being
transferred to the Operating Partnership pursuant to the Contribution Agreement.
1.7 Title to Corporate Assets. To the best of Indemnitor's
--------------------------
knowledge, the Asset Entity has good and marketable title to the Corporate
Assets identified in the Contribution Agreement as being owned by such Asset
Entity, free and clear of any material Liabilities of any kind except as
disclosed in the Financial Statements (as defined hereinafter).
1.8 Debt. To the best of Indemnitor's knowledge, except for the
----
existing mortgage debt with respect to the Property, as described in the
Registration Statement, the Asset Entity does not have any indebtedness other
than indebtedness incurred by it in its ordinary course of business (which in no
case exceeds **[$50,000]**). There exists no default or, to the knowledge of
the Indemnitor, any event which with the passage of time or notice or both would
constitute a default, with respect to the mortgage debt or any other debt of
such entity that has not been cured or waived.
1.9 Financial Statements. To the best of Indemnitor's knowledge, the
---------------------
consolidated financial statements of the Asset Entity incorporated in the
Registration Statement (the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods specified. The balance sheets in the Financial
Statements fairly present the financial condition of such entities as of the
dates shown and the income statements in the Financial Statements fairly present
the results of operations for the periods indicated. To the best of
Indemnitor's knowledge, there are no material known Liabilities of the Asset
Entity that are not described in such Financial Statements.
1.10 Financial Condition. Since the date of the Financial
-------------------
Statements, there has been no material adverse change in the condition
(financial or otherwise), earnings, business, affairs or business prospects of
Indemnitor or the Asset Entity except as disclosed on Schedule
--------
<PAGE>
1.10 attached hereto. Neither the Indemnitor nor the Asset Entity (i) is in
- ----
receivership or dissolution, (ii) has made an assignment for the benefit of
creditors or admitted in writing its inability to pay its debts as they mature,
or (iii) has been adjudicated a bankrupt or filed a petition in voluntary
bankruptcy or a petition or answer seeking reorganization or an arrangement with
creditors under the Federal bankruptcy law or any other similar law or statute
of the United States or any jurisdiction and no such petition has been filed
against such Indemnitor or the Asset Entity.
1.11 Contracts. Except for (i) agreements relating to mortgage
---------
financing assumed by the Operating Partnership or to be repaid in connection
with the Transactions, (ii) agreements relating to other indebtedness for
borrowed money disclosed in the Registration Statement, (iii) agreements that
the REIT or the Operating Partnership have or will enter into, or (iv) the
leases referred to in Section 1.12 below, Schedule 1.11 attached hereto lists
-------------
all contracts or other understandings, written or oral, to which the Asset
Entity is a party or by which the Asset Entity is bound that relate to the
Property or the Corporate Assets or that would otherwise become binding on the
REIT or the Operating Partnership following consummation of the Transactions
(collectively, the "Contracts" and each, a "Contract") which (a) singly or in
combination with any other contract purporting to address the same matter for
the Property or the Corporate Assets could require payments in excess of $50,000
in any year and (b) would not be terminable on six months notice or less by such
Asset Entity or the Operating Partnership without violating the terms thereof.
Each of the Contracts is valid and binding on the Asset Entity that is a party
thereto, as applicable, and is in full force and effect in all material
respects. The Asset Entity has not, and to the knowledge of the Indemnitor, no
other party to any Contract has, breached or defaulted under the terms of such
Contract, except for such breaches or defaults that would not, singly or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), earnings, assets, business affairs or business prospects of the
Asset Entity, the Property, the Corporate Assets or on the Transactions.
1.12 Leases; Rent Rolls. With respect to the Property, a true,
-------------------
complete and correct copy of the lease (including all amendments, modifications
and supplements thereto) for such Property have been delivered to the REIT or
the Operating Partnership. The lease, upon the completion of the Transactions,
will be in full force and effect in all material respects. No party to any such
lease has breached or defaulted under the terms of such lease, except for such
breaches or defaults as would not, singly or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), earnings, assets,
business affairs or business prospects of the Asset Entity, the Property, the
Corporate Assets or the Transactions.
1.13 Permits. There exists for the Property (and will continue to
-------
exist immediately following the consummation of the Transactions) all
certificates, licenses, permits and other authorizations from governmental or
political subdivisions or regulatory authorities (collectively, "Permits") as
are necessary for the ownership, use, operation and licensing of such Property
as it is currently being operated, except for such Permits for which the failure
to possess would not have a material adverse effect on the condition (financial
or otherwise), earnings, business, affairs or business prospects of the
Property. All such Permits are in full force and effect and no such Permit has
been violated in any material respect.
<PAGE>
1.14 Litigation; Moratoria. Etc. No claims, actions, suits,
---------------------------
proceedings or investigations have been instituted or, to the knowledge of the
Indemnitor, threatened against any Grantor, the Asset Entity or any of the
properties or rights of any of them (including, without limitation, the Property
and the Corporate Assets), before or by any court or administrative,
governmental or regulatory authority or body, domestic or foreign, that would
have a material adverse effect on the condition (financial or otherwise),
earnings, business, affairs or business prospects of the Property, any such
Grantor, the Asset Entity or the Transactions. Neither the Asset Entity nor the
Property is subject to any order, judgment, injunction or decree of any court,
tribunal or other governmental authority (other than generally applicable laws,
rules and regulations) that would have a material adverse effect on the business
or condition (financial or otherwise), earnings, business, affairs or business
prospects of the Asset Entity or the Property. Except as disclosed in the
Registration Statement, there is no pending or, to the knowledge of the
Indemnitor, threatened litigation, moratorium, condemnation proceedings, zoning
change, or other similar proceeding or action that is likely to in any manner
affect the size of, use of, improvements on, construction on, access to or
availability of utilities or other necessary services to the Property, except
such proceedings or actions that would not, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), earnings,
assets, business, affairs or business prospects of or with respect to such
Property or of the Asset Entity or, following the consummation of the
Transactions, the REIT or the Operating Partnership.
1.15 Compliance with Laws, Etc. The Property is not in violation in
-------------------------
any material respect of any zoning code, law, regulation or ordinance or any
recorded covenants applicable to such Property which would have a material
adverse effect on the condition (financial or otherwise), earnings, business,
affairs or business prospects of any Grantor, Asset Entity or the Property or on
the Transactions. The Asset Entity, or proper representative thereof, has not
received any written or other notice of any violation of any applicable zoning
code, law, regulation or ordinance, or of any employment, environmental, or
other regulatory law, order, regulation, or requirement relating to the Property
which remains uncured, and there are no such violations which, individually or
in the aggregate, would have a material adverse effect on the condition
(financial or otherwise), earnings, business, affairs or business prospects of
the Asset Entity or the Property or on the Transactions.
1.16 Taxes, Utilities, Etc. Except for such matters that in the
----------------------
aggregate would not result in a material adverse effect on the condition
(financial or otherwise), earnings, business, affairs or business prospects of
the Asset Entity or the Property or on the Transactions, (i) all tax or
information returns required to be filed on or before the date hereof by or on
behalf of Indemnitor or the Asset Entity have been filed through the date hereof
or will be filed on or before the closing of the IPO in accordance with all
applicable laws, and (ii) there is no action, suit or proceeding pending
against, or with respect to, Indemnitor or the Asset Entity or the Property in
respect of any tax (other than tax abatement proceedings) nor is any claim for
additional tax asserted by any such authority. No amounts due and owing with
respect to the Property in connection with utilities, insurance, assessments or
other charges customarily prorated in real estate transactions have been
outstanding more than 30 days.
1.17 Insurance. The Asset Entity currently has in place the public
---------
liability, casualty and other insurance coverage with respect to its Property as
is required by the applicable mortgage or bond financing documents to be assumed
by the REIT or the Operating Partnership
<PAGE>
or to be placed by the REIT or the Operating Partnership on the Property (as
described in the Registration Statement) or as would otherwise customarily be
carried by owners or operators of projects similar to the Property in the
markets in which such Property is located. To the knowledge of Indemnitor, each
insurance policy with respect to the Property is in full force and effect and
all premiums due and payable thereunder have been fully paid when due.
Indemnitor nor, to the knowledge of Indemnitor, the Asset Entity, has received
from any insurance company notice of any material defects or deficiencies
affecting the insurability of the Property or any notices of cancellation or
intent to cancel any such insurance.
1.18 Employees. Except as disclosed on Schedule 1.18, the Asset
---------- -------------
Entity has no employees.
1.19 Environmental. To the knowledge of Indemnitor, except as
--------------
disclosed in the environmental report prepared for the Property and enumerated
on Schedule 1.19 (the "Environmental Report") and in the Registration Statement:
-------------
(i) no Hazardous Substances (as defined below) are present in the
Environment (as defined below) at the Property in amounts or concentrations that
would have a material adverse effect on the condition (financial or otherwise),
earnings, assets, business, affairs, or business prospects of the Property, the
Asset Entity, the Transactions, the REIT, or the Operating Partnership,
(ii) the Asset Entity has not caused or allowed any discharging or
disposal of any Hazardous Substance or pollutant into the Environment at the
Property in material violation of any Environmental Law (as defined below)
applicable to such Property and in an amount that would have a material adverse
effect on the condition (financial or otherwise), earnings, assets, business,
affairs, or business prospects of the Property, the Asset Entity, the
Transactions, the REIT, or the Operating Partnership;
(iii) the Asset Entity has not received any notice of a claim under
or pursuant to any Environmental Law applicable to the Property pertaining to
Hazardous Substances on the Property or pertaining to other property at which
Hazardous Substances generated at the Property have come to be located;
(iv) the Asset Entity has not received any notice from any
Governmental Authority (as defined below) claiming any violation of any
Environmental Law at the Property that is uncured or unremediated as of the date
hereof; and
(iv) the Property (A) is not included on the National Priorities List
issued pursuant to CERCLA (as defined below) by the United States Environmental
Protection Agency (the "EPA") or on the Comprehensive Environmental Response,
Compensation and Liability Information System database maintained by the EPA or
(B) is included on any similar list of potentially contaminated sites pursuant
to any other applicable Environmental Law, and the Asset Entity has not received
any written notice from the EPA or any other Governmental Authority proposing
the inclusion of the Property on such list.
As used herein, "HAZARDOUS SUBSTANCE" shall mean asbestos or asbestos
containing materials, polychlorinated biphenyls or any hazardous substance,
hazardous material, hazardous
<PAGE>
waste, toxic substance, toxic material, toxic waste, oil, petroleum, or
petroleum-derived substance or waste, listed or regulated under the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
(42 U.S.C. (S)(S) 9601 et seq.) ("CERCLA"), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. (S)(S) 6901, et seq.) ("RCRA"), or any other
Environmental Law affecting the Property; "ENVIRONMENT" shall mean any ambient
air, surface water, ground water, land surface, or subsurface strata located at,
on, or under the Property; "ENVIRONMENTAL LAW" shall mean CERCLA, RCRA, the
Clean Air Act, as amended (42 U.S.C. (S)(S) 7401 et seq.), or the Clean Water
Act, as amended (33 U.S.C. (S)(S) 1251 et seq.), together with all laws, rules,
regulations, statutes, ordinances and orders promulgated thereunder and all
other federal, state and local laws, relating to the protection of the
environment or the safety and health of persons from exposure to any actual or
potential release, removal, discharge or emission of Hazardous Substances;
"GOVERNMENTAL AUTHORITY" shall mean any federal, state or local governmental
office, agency or authority having the duty or authority to promulgate,
implement or enforce any Environmental Law; "LIEN" shall mean, with respect to
the Property, any mortgage, deed of trust, pledge, security interest, lien,
encumbrance, penalty, fine, charge, assessment, judgment, or other liability in,
on, or affecting such Property.
1.20 Condition of the Property: No Alterations. There is no material
------------------------------------------
defect in the condition of the Property, the improvements thereon, the
structural elements thereof, or the mechanical systems therein, nor any material
damage from uninsured casualty or other cause, nor any soil condition of any
such Property that will not support all of the improvements thereon without the
need for unusual or new subsurface excavations, fill, footings, caissons or
other installations, except for any such defect, damage or condition that has
been corrected or will be corrected in the ordinary course of the business of
such Property as part of its scheduled annual maintenance and improvement
program.
1.21 Ground Leases. (i) each ground lease which creates a leasehold
--------------
interest in the Property (collectively, "Ground Leases") is in full force and
effect, (ii) no material default exists under any of the terms, conditions,
covenants or provisions of any of the Ground Leases, (iii) neither the Asset
Entity nor the landlord under any of the Ground Leases has commenced any action
or given or received any notice asserting a default thereunder or for the
purpose of terminating any of the Ground Leases and (iv) all rents, additional
rents and other sums which have been billed under any of the Ground Leases have
been paid in full.
2. Additional Representations and Warranties with Respect to Indemnitor.
---------------------------------------------------------------------
Indemnitor hereby further represents and warrants to the REIT and the Operating
Partnership as follows:
2.1 Authority Relative to this Agreement. All action of such
------------------------------------
Indemnitor necessary to authorize the execution, delivery and performance of
this Agreement by such Indemnitor has been taken, and no other proceedings on
the part of such Indemnitor are necessary to authorize the execution and
delivery by such Indemnitor of this Agreement and the consummation by such
Indemnitor of the transactions hereunder. Neither the execution and delivery of
this Agreement by such Indemnitor, nor the consummation by such Indemnitor of
the transactions contemplated hereunder, nor compliance by such Indemnitor with
any of the provisions of this Agreement will (i) conflict with or result in any
breach of any provisions of the partnership agreement, the articles of
incorporation or bylaws or other organizational documents,
<PAGE>
as applicable, to which such Indemnitor is bound or is a party, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which such Indemnitor is a party or by which such
Indemnitor may be bound, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to such Indemnitor, except in the case of
(ii) or (iii) for violations, breaches or defaults which would not in the
aggregate have a material adverse effect on the business or financial condition
of such Indemnitor.
2.2 Binding Obligation. This Agreement has been duly and validly
------------------
executed and delivered by such Indemnitor and constitutes a valid and binding
agreement of such Indemnitor, enforceable against such Indemnitor in accordance
with its terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally and to general principles of equity.
2.3 Registration Statement. The Indemnitor has reviewed the
----------------------
Registration Statement and represents and warrants that it does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
3. Indemnity, Limitations on Liability. Subject to the terms hereof,
-----------------------------------
Indemnitor hereby agrees to indemnify and hold harmless the REIT and the
Operating Partnership (each, a "Covered Party") from any damage, expense, loss,
cost, claim or liability (each a "Claim") suffered or incurred by any Covered
Party as a result of any inaccuracy in any representation or warranty contained
herein. Notwithstanding anything to the contrary contained in this Agreement,
(a) for so long as the REIT shall have a valid, first priority perfected lien on
and security interest in the Collateral described in the Pledge Agreement
referred to in Section 4 hereof, the maximum liability of Indemnitor under this
Agreement shall be limited to the rights of such entity in such Collateral;
provided, however, that the Indemnitor shall have no liability resulting from
- --------- --------
any Claims, unless and until the amount of such Claims shall exceed in the
aggregate $100,000 (except with respect to liabilities arising pursuant to
Section 1.4 hereof which are evidenced by written brokerage agreements which
have been executed by Indemnitor or the Asset Entity or any general partner,
officer or director of Indemnitor on behalf of such Indemnitor, with respect to
which such minimum aggregate amount shall not apply); the liability of
Indemnitor hereunder is expressly limited to the actual out-of-pocket damages,
expenses, losses, costs or liabilities suffered or incurred by the REIT or the
Operating Partnership (including, without limitation, reasonable attorneys' fees
and expenses and other costs incurred in defending against any adverse claims)
as a result of any matter referred to in this Section 3 (each, a "Covered
Matter") and with respect to which a claim is made in accordance with Section 5
hereof, and the Indemnitor shall not be liable to any Covered Party under this
Agreement for any indirect, special, consequential, loss of profits, or similar
speculative damages asserted or claimed by a Covered Party.
<PAGE>
4. Pledge of Stock and Units. As security for the full and timely
--------------------------
performance of its obligations hereunder, the Indemnitor agrees to execute and
deliver a Pledge and Security Agreement and the documents referred to therein
(the "Pledge Agreement") in the form of Exhibit C attached hereto and to make
---------
the deliveries and perform the obligations required thereunder.
5. Survival: Agreements Regarding Certain Claims. It is the express
----------------------------------------------
intention and agreement of the parties hereto that the representations,
warranties and indemnities set forth in this Agreement shall survive the Final
Closing for a period equal to one (1) year from the date hereof and (except as
specifically provided below in this Section 5) shall expire and be terminated
and extinguished forever at such time, except with respect to claims asserted
against the Indemnitor in good faith pursuant hereto by written notice from any
or all of the Covered Parties to such Indemnitor at any time within one (1) year
following the date hereof. Any written notice given within such one (1) year
period must set forth the nature and details of the Claim with reasonable
specificity in order to constitute a valid notice pursuant to the preceding
sentence. Each Covered Party agrees that, in the event that such Covered Party
could reasonably make any claim with respect to a matter covered by this
Agreement under any existing policy of insurance or against any Grantor under a
Grantor Agreement, such Covered Party shall, prior to taking any action
hereunder against the Indemnitor, make a claim under such policy or against such
Grantor and thereafter shall use reasonable efforts to prosecute such claim to
completion; provided, however, that from and after (i) the time that notice is
-------- -------
given to Indemnitor that a Claim exists but that coverage therefor is being
sought from an insurer or Grantor and that no action or (in accordance with the
preceding proviso) limited action is being taken against such Indemnitor
(provided such notice is given within one (1) year following the date of the
Final Closing), through and including (ii) thirty days after the date of
abandonment (by non-prosecution or otherwise) of such Claim against such carrier
or Grantor (or other final disposition of such Claim) or, if earlier, the
applicable limitations period for such claim, such one year period, with respect
to that Indemnitor and that Claim only and no other Claim (other than other
Claims satisfying the conditions of this proviso), shall be stayed, as
necessary, to preserve such Covered Party's rights against such Indemnitor under
this Agreement. The amounts recovered under an insurance policy or from any
Grantor with respect to any Claim shall be credited against the Indemnitor's
liability with respect to such Claim.
6. Miscellaneous.
--------------
6.1 Notices. All notices, demands, requests or other communications
-------
which may be or are required to be given or made either by the Indemnitor, on
the one hand, or the REIT or the Operating Partnership, on the other hand,
pursuant to this Agreement shall be in writing and shall be hand delivered or
transmitted by certified mail, express overnight mail or delivery service,
telegram, telex or facsimile transmission to the parties to the following
addresses:
If to Indemnitor, to: c/o LaSalle Partners
220 East 42nd Street
New York, New York 10017
Attn: Michael Barnello
Phone: (212) 661-6161
Facsimile: (212) 687-8170
<PAGE>
With a copy to: Hagan & Associates
200 East Randolph Drive
Suite 4322
Attn: Robert K. Hagan, Esq.
Phone: (312) 228-1050
Facsimile: (312) 228-0982
If to the REIT or the Operating
Partnership to: c/o LaSalle Partners
220 East 42nd Street
New York, New York 10017
Attn: Michael Barnello
Phone: (212) 661-6161
Facsimile: (212) 687-8170
With a copy to: Brown & Wood
One World Trade Center
New York, NY 10048
Attn: Michael F. Taylor, Esq.
Phone: (212) 839-8602
Facsimile: (212) 839-5599
or to such other address in the United States of America as the addressee may
indicate by written notice to the other party in conformance with this Section
6.1.
Each notice, demand, request or communication which shall be given or made
in the manner described above shall be deemed sufficiently given or made for all
purposes at such time as it is delivered to the addressee (with the delivery
receipt, the affidavit of messenger or (with respect to a telex) the answer back
being deemed conclusive but not exclusive evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.
6.2 Benefit and Assignment. No party hereto shall assign this
----------------------
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of the Indemnitor (if the assignor is the
Operating Partnership or the REIT) or of the Operating Partnership and the REIT
(if the assignor is the Indemnitor); and any purported assignment contrary to
the terms hereof shall be null, void and of no force and effect. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns as permitted hereunder. No person or
entity other than the parties hereto is or shall be entitled to bring any action
to enforce any provision of this Agreement against any of the parties hereto,
and the covenants and agreements set forth in this Agreement shall be solely for
the benefit of, and shall be enforceable only by, the parties hereto or their
respective successors and assigns as permitted hereunder.
<PAGE>
6.3 Entire Agreement; Amendment. This Agreement contains the final
----------------------------
and entire agreement between the parties hereto with respect to the subject
matter hereof and is intended to be an integration of all prior negotiations and
understandings. The parties to this Agreement shall not be bound by any terms,
conditions, statements, warranties or representations, oral or written, not
contained or referred to herein or therein. No change or modification of this
Agreement shall be valid unless the same is in writing and signed by the parties
hereto.
6.4 Governing Law. This Agreement, the rights and obligations of
--------------
the parties hereto and any claims or disputes relating thereto shall be governed
by and construed under the laws of the State of New York.
6.5 Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
6.6 Definition of Knowledge. As used herein, "to the knowledge" of
------------------------
Indemnitor means the actual knowledge of such Indemnitor.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered on its behalf as of the date first above written.
LASALLE OPERATING PARTNERSHIP, L.P.
By: LaSalle Hotel Properties,
its General Partner
By:________________________________
Name:
Title:
**[LASALLE PLAZA PARK LIMITED
PARTNERSHIP]** **[LASALLE SEAVIEW, L.P.]** **[LASALLE LRP
BLOOMINGTON LIMITED PARTNERSHIP]** **[LASALLE LRP DALLAS
HOTEL LIMITED PARTNERSHIP**] **[LASALLE LRP NEW ORLEANS
HOTEL LIMITED PARTNERSHIP**] **[LASALLE LRP KEY WEST HOTEL
INVESTORS LIMITED PARTNERSHIP**] **[LASALLE LE MONTROSE
LIMITED PARTNERSHIP]** **[LASALLE SABAL PLAZA LIMITED
PARTNERSHIP]** **[LASALLE OMAHA HOTEL INVESTORS LIMITED
PARTNERSHIP]** **[LASALLE HOTEL CO-INVESTMENT, INC.]**
By:________________________________
Name:
Title:
<PAGE>
SCHEDULE 1.10
- -------------
Listing of material adverse change in the condition (financial or
otherwise), earnings, business, affairs or business prospectus of Indemnitor or
the Asset Entity: NONE
<PAGE>
SCHEDULE 1.11
- -------------
List of contracts or understandings that require $10,000 payment with
respect to the Property and are not terminable on 6 months notice or less: NONE
<PAGE>
Exhibit C
[Pledge Agreement]
<PAGE>
EXHIBIT 10.18
EXHIBIT C
---------
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement made as of _______ __, 1998 by and among
LaSalle Hotel Properties (the "Company"), LaSalle Hotel Operating Partnership,
L.P. (the "Operating Partnership," together with the Company, the "Pledgee") and
**[LaSalle Plaza Park Limited Partnership, **[LaSalle Seaview, L.P. **[LaSalle
LRP Bloomington Limited Partnership]** **[LaSalle LRP Dallas Hotel Limited
Partnership]** **[LaSalle LRP New Orleans Hotel Limited Partnership]**
**[LaSalle LRP Key West Hotel Investors Limited Partnership]** **[LaSalle Le
Montrose Limited Partnership]** **[LaSalle Sabal Plaza Limited Partnership]**
LaSalle Omaha Hotel Investors Limited Partnership]** **[LaSalle Hotel Co-
Investment, Inc.]** ("Pledgor").
WHEREAS, Pledgor has entered into an Omnibus Contribution Agreement dated
as of January 30, 1998 and as amended (the "Contribution Agreement") with the
Operating Partnership pursuant to which Pledgor granted the Operating
Partnership an option to purchase certain assets;
WHEREAS, pursuant to the terms of the Contribution Agreement, Pledgor has
executed a Supplemental Representations, Warranties and Indemnity Agreement (the
"Supplemental Agreement") pursuant to which Pledgor has agreed to indemnify
Pledgee for certain losses;
WHEREAS, Pledgor has entered into the Supplemental Agreement in order to
induce the Operating Partnership to enter into the Contribution Agreement for
the benefit of Pledgor; and
WHEREAS, pursuant to the Supplemental Agreement, Pledgor has agreed to
enter into this Pledge and Security Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Pledgor and Pledgee hereby agree as follows:
Section 1. The Pledge.
- ------- ----------
(a) As collateral security for full and timely performance of Pledgor's
obligations under the Supplemental Agreement (the "Secured Obligations"),
Pledgor hereby transfers, conveys, pledges, hypothecates and delivers to Pledgee
and its successors and assigns, and grants to Pledgee and its successors and
assigns a security interest in the following property (collectively referred to
herein as the "Collateral"):
(i) the units of limited partnership interest in the Operating
Partnership (the "Units") and the shares of common stock of the
Company (the "Common Stock") owned by Pledgor identified in EXHIBIT A
---------
hereto along with any shares of Common Stock exchanged for such Units
(the Units and the Common Stock, collectively the "Pledged
Securities");
<PAGE>
(ii) all shares, securities, cash or property representing a dividend
or distribution on any of the Pledged Securities resulting from a
split-up, recapitalization, reclassification or other blanket change
of the Pledged Securities or otherwise received in exchange therefor
(which shall not include any quarterly or other regular cash
dividend);
(iii) any collateral substituted for the Pledged Securities pursuant
to Section l(b) below; and
------------
(iv) all proceeds of the property described in clauses (i) and (ii)
or, if collateral has been substituted under Section l(b) below, all
------------
proceeds of the property described in clause (iii) of this Section 1,
---------
but excluding any quarterly or regular cash dividend.
So long as no Event of Default as defined in Section 2(a) below shall have
------------
occurred and be continuing, Pledgor shall be entitled to receive and retain any
and all quarterly or regular cash dividends paid on the Collateral as defined in
Section l(b) below including any such dividends collected by Pledgee. If any of
- ------------
the above-described shares, securities, monies or property required to be
pledged by Pledgor under Section 1 hereof are received by Pledgor, Pledgor will
forthwith transfer and deliver to Pledgee such shares or securities so received
(together with the certificates for any such shares and securities duly endorsed
in blank or accompanied by undated stock powers duly executed in blank), all of
which thereafter shall be held by Pledgee pursuant to the terms of this
Agreement, as part of the Collateral.
The security interest in the Collateral granted to Pledgee as security for
the Secured Obligations shall terminate on [__________], except as to any amount
owing in respect of Pledgor's share of a loss under Section 3 of the
---------
Supplemental Agreement for which Pledgee has made demand for reimbursement prior
to such date (a "Pending Demand"). If a Pending Demand exists on [____________]
the security interest in the Collateral granted to Pledgee as security for the
Secured Obligations shall terminate when (a) such Pledgor's obligation under
Section 3 of the Supplemental Agreement is paid or (b) the Pending Demand has
- ---------
been finally determined (by agreement of Pledgee and Pledgor or a final judgment
of a court) to be without merit. On the applicable termination date provided
for in this paragraph, Pledgee shall forthwith cause to be assigned, transferred
and delivered, against receipt, any remaining Collateral and any money received
in respect of, to or on the order of Pledgor.
(b) Substitution of Publicly Traded Securities for the Pledged Securities.
---------------------------------------------------------------------
At any time after [_____________], Pledgor may substitute for the Pledged
Securities owned by him, certificated securities traded on a national securities
exchange or United States treasury bills, notes or bonds ("Treasury Securities")
which have Collateral Value, as hereinafter defined, equivalent to that of the
Pledged Securities (the "Substitute Collateral"). Pledgor shall effect such
substitution by delivering one or more certificates representing the Substitute
Collateral, duly endorsed in blank or accompanied by undated stock powers duly
executed in blank, to Pledgee or, in the case of Treasury Securities, by making
appropriate arrangements for registration of a pledge of the Substitute
Collateral in favor of Pledgee. Upon tender of the Substitute Collateral and
determination that the substituted securities are in due form hereunder, Pledgee
will return to Pledgor the certificates representing the Pledged Securities. As
used
2
<PAGE>
herein, "Collateral Value" means with respect to Pledged Securities the
product of (i) the number of shares of Common Stock or Units for which
Substitute Collateral is to be delivered multiplied by (ii) the closing price
per share of the Common Stock as reported by the New York Stock Exchange on the
day prior to the date on which the Substitute Collateral is received by Pledgee
and, with respect to Substitute Collateral, the product of (x) the number of
shares, units or other denominations of Substitute Collateral delivered
multiplied by (y) the price per share, unit or other denomination of the
Substitute Collateral at (or as nearly close to as can be determined) closing
or, if trading is continuous, 3:00 P.M. Eastern Time on the day prior to the
date on which the Substitute Collateral is delivered as reported by the
principal exchange or quotation system through which the Substitute Collateral
is traded. Pledgor agrees to take whatever steps are required to perfect
Pledgee's lien and take whatever other action is reasonably required to create
an equivalent lien to the lien created herein on the Substitute Collateral.
Pledgor will, at its expense, promptly execute, acknowledge and deliver all such
instruments and take all such action, including amendments hereto as Pledgee
from time to time may reasonably request in order to secure to Pledgee's
satisfaction the benefits of the liens in the Substitute Collateral created or
intended to be created by this Agreement. The rights of Pledgee under this
section shall be in addition to any and all other rights Pledgee may have
hereunder or under any other document, instrument or agreement with respect to
the Pledged Securities and the Secured Obligations, and may be exercised by
Pledgee on any one or more occasions.
Section 2. Events of Default and Remedies.
- ------- ------------------------------
(a) "Event of Default" means the occurrence of any of the following events:
1. any breach of any representation and warranty contained in
the Supplemental Agreement and Pledgor's failure to reimburse Pledgee
for the resulting loss within 20 days after demand; or
2. the failure of Pledgor to perform or observe any covenant
or agreement herein contained which failure continues for 20 days
after notice thereof is given by Pledgee to Pledgor.
(b) So long as no Event of Default shall have occurred under this Agreement
and be continuing, Pledgee shall have no voting or other powers of ownership
pertaining to the Collateral except for the right to receive the proceeds of the
Collateral as provided in Section 1(a) hereof.
(c) During any period in which an Event of Default shall have occurred and
be continuing, Pledgee shall have the following rights regarding the Collateral:
(i) Pledgee shall have all of the rights and remedies with respect to the
Collateral of a Secured Party under the Uniform Commercial Code, as is in effect
from time to time in the State of New York, and such additional rights and
remedies to which a secured party is entitled under the laws in effect and in
any jurisdiction where any rights and remedies hereunder may be asserted,
including, without limitation, the right, to the fullest extent permitted by
law, to exercise all voting, and other powers of ownership pertaining to the
Collateral as if Pledgee was the sole and absolute owner thereof (and Pledgor
agrees to take all such actions as may be appropriate to give effect to such
rights); (ii) Pledgee in its discretion may, in its name or the name of Pledgor
or otherwise,
3
<PAGE>
demand, sue for, collect or receive any money or property at any time payable or
receivable on account of (including, but not limited to, cash distributions or
dividends paid on the Collateral subsequent to such Event of Default) or in
exchange for any of the Collateral, but shall be under no obligation to do so;
(iii) Pledgee may, without notice, apply any cash then held by Pledgee hereunder
in such amount as may be necessary, in Pledgee's sole discretion, to cover
losses or damages caused by an Event of Default; (iv) Pledgee may, upon 10
business days' written notice to Pledgor of the time and place, sell, assign or
otherwise dispose of all or any part of their collateral, at such place or
places as Pledgee deems best, and for cash, credit or future delivery (without
thereby assuming any credit risk), without demand or performance or further
notice of intention to effect such disposition or the time or place thereof
(except such notices which are required by applicable statute and cannot be
waived); and, further, Pledgee or anyone else who may be the purchaser, the
lessee, transferee or assignee of any or all of the Collateral so disposed of
shall thereafter hold the same absolutely free from any claim of right or
whatsoever kind, including any right or equity of redemption (statutory or
otherwise).
The proceeds of each collection, sale or other disposition under this
section shall be applied in accordance with Section 7 hereof.
---------
Pledgor recognizes that, by reason of certain prohibitions contained in the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
securities laws ("Blue Sky Laws"), Pledgee may be compelled, with respect to any
sale of all or any part of the Collateral, to make sales of such Collateral to
purchasers who have agreed, among other things, to acquire the Collateral for
their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges that such sales may be at prices and on
terms less favorable to Pledgee than those obtainable through a public sale
without such restrictions, and notwithstanding such circumstances, agrees that
any such sale shall be deemed to have been made in a commercially reasonable
manner. Pledgor acknowledges and agrees that under no circumstances will
Pledgee be required to register any of the Pledged Securities under the
Securities Act or any Blue Sky Laws.
(d) If any consent, approval or authorization of, or filing with, any
Governmental Authority or any other Person should be necessary to effectuate any
sale or other disposition of the Collateral, or any partial disposition of the
Collateral, Pledgor agrees to execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use its best efforts to secure the
same. Pledgor further agrees to use its best efforts to secure such sale or
other disposition of the Collateral as Pledgee may deem necessary pursuant to
the terms of this Agreement.
(e) Pledgee shall not be obligated to make any sale or other disposition
unless the terms thereof shall be satisfactory to Pledgee in its sole and
absolute discretion. Pledgee may, without notice or publication, adjourn any
private or public sale, and, upon five (5) business day's written notice to
Pledgor, hold such sale at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral, on credit
or future delivery, the Collateral so sold may be retained by Pledgee until the
selling price is paid by the purchaser thereof, but Pledgee shall incur no
liability in case of the failure of such purchaser to take up and pay for the
property so sold and, in case of any such failure, such property may again be
sold as herein provided.
4
<PAGE>
Section 3. Certain Representations and Warranties.
Pledgor represents and warrants that:
(a) Pledgor has good and marketable title to the Pledged Securities
described in EXHIBIT A hereof;
---------
(b) The units of Pledged Securities are subject to no pledge, claim,
lien, security interest, charge, option, restriction or other
encumbrance except for (i) the restrictions, if any, set forth in
EXHIBIT B annexed hereto, which restrictions either by their terms or
---------
by waiver duly granted do not prohibit the pledge made hereby of
Pledgee's rights hereunder, (ii) the security interest created by this
Agreement and (iii) restrictions on transfer under the Securities Act
and Blue Sky Laws;
(c) Pledgor has full power, authority and legal right to execute and
deliver this Pledge Agreement and to pledge all shares of Pledged
Securities pursuant to this Agreement;
(d) The execution and delivery of this Agreement and the pledge of the
Collateral are within Pledgor's power, and such execution and delivery
and the pledging of such shares do not contravene any law, rule or
regulation thereunder or any judgment or order of any tribunal or of
any agreement or instrument to which Pledgor is a party or by which
Pledgor or any of its properties is bound or constitutes a default
thereof.
Section 4. Marshalling.
- ------- -----------
Pledgee shall not be required to marshall any present or future security
for (including, but not limited to this Agreement or any collateral pledge
hereunder), or guaranties of, the Secured Obligations of Pledgor, or to resort
to such security or guaranties in any particular order; and all of its rights
hereunder and in respect of such security and guaranties shall be cumulative and
in addition to all other rights hereunder, however existing or arising. To the
extent that they may lawfully do so, Pledgor hereby agrees not to invoke any law
relating to the marshalling of collateral which may cause delay and/or impede
the enforcement of any of Pledgee's rights under this Agreement or any other
instrument evidencing any of the obligations under this Agreement or the
Supplemental Agreement or under which any of such obligations is outstanding or
by which any of such obligations is secured or guarantied, and to the extent
that Pledgor may lawfully do so, Pledgor hereby irrevocably waives the benefit
of all such laws.
Section 5. Deficiency.
- ------- ----------
If the proceeds of sale, collection or realization of or upon the
Collateral pursuant to Section 2 hereof are insufficient to cover the cost and
---------
expenses of such realization and the payment in full of the Secured Obligations,
Pledgor shall not be liable for any amounts which exceed the Collateral.
Pledgee may not collect from Pledgor's Collateral more than the Secured
Obligations plus costs and expenses of realizing on such Collateral.
5
<PAGE>
Section 6. Pledgor's Obligations Not Affected.
- ------- ----------------------------------
The obligations of Pledgor hereunder shall remain in full force and effect
and shall not be impaired by:
(a) any amendment to or modification of any instrument (other than
this Agreement) securing any of the Secured Obligations;
(b) the taking of additional security for, or any guaranty of, any of
the Secured Obligations or the release or discharge or termination of
any security or guaranty for any of the Secured Obligations; or
(c) the lack of enforceability of any of the Secured Obligations
against Pledgor or any other person, whether or not Pledgor shall have
notice or knowledge of any of the foregoing.
Section 7. Application of Proceeds.
- ------- -----------------------
Except as otherwise expressly provided in Section 5 herein, the proceeds of
---------
any collection, sale or other realization of any or any part of the Collateral
pursuant hereto shall be applied by Pledgee: first to the payment of the cost
and expenses of such collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of Pledgee and the fees and expenses of its
agents and counsel; second to the payment in full of the Secured Obligations;
and lastly, to the payment to Pledgor, or its heirs, executives, administrators,
- ----------
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining.
As used in this Section 7, "the proceeds" of the Collateral shall mean
---------
cash, securities and other property realized.
Section 8. Perfection.
- ------- ----------
At the Closing, Pledgor shall deliver to Pledgee evidence of the
registration of pledge on the books of the Operating Partnership of the Units
identified as owned by Pledgor in EXHIBIT A hereto to Pledgee. Pledgor agrees
---------
to take any and all subsequent actions reasonably necessary to perfect the
security interest in the Collateral contemplated hereby.
Section 9. Transfer, Etc., by Pledgor.
- ------- --------------------------
Except for the substitution of Collateral as provided in Section l(b)
------------
hereof, without (i) the prior written consent of Pledgee or (ii) the delivery of
securities and instruments of transfer for substitution of Collateral under
Section l(b) hereof, Pledgor will not sell, assign, transfer or otherwise
- ------------
dispose of, grant any option with respect to, or pledge or grant any security
interest in or otherwise encumber any in the Collateral or any interest therein,
except for the Pledge provided for in this Agreement and for those obligations
set forth in EXHIBIT B hereto.
---------
Section 10. Further Assurances.
- ------- ------------------
6
<PAGE>
Pledgor will from time to time execute and deliver to Pledgee all such
other and further instruments and documents and take or cause to be taken all
such other and further actions as Pledgee may reasonably request in order to
effect and confirm more securely in Pledgee all rights contemplated in this
Agreement.
Section 11. Expenses.
- ------- --------
Subject to Section 5 hereof, Pledgor agrees to pay to Pledgee all
---------
reasonable out-of-pocket expenses of Pledgee (including reasonable expenses for
legal services of every kind) of, or incident to the enforcement of, any
provisions of this Agreement.
Section 12. Miscellaneous.
- ------- -------------
(a) Waiver, etc. No act, failure or delay by Pledgee shall constitute
-----------
a waiver of its rights, powers or remedies hereunder or otherwise. No
single or partial waiver by Pledgee of any of its agents of any
default or right or remedy which it may have shall constitute a waiver
of any other default, right or remedy or of the same default, right or
remedy on a future occasion. Pledgor hereby waives presentment,
notice of dishonor and protest of all instruments and any and all
other notices and demands whatsoever (except as expressly provided
herein). The remedies herein are cumulative and are not exclusive of
any other remedies which may be provided by law.
(b) Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of New York.
(c) All communications herein provided shall be in writing and shall
be sufficient if sent by United States mail, registered or certified,
delivered by messenger, so called overnight courier, telex or
facsimile, addressed as follows:
If to Pledgor: c/o LaSalle Partners
220 East 42nd Street
New York, New York 10017
Attn: Michael Barnello
Phone: (212) 661-6161
Facsimile: (212) 687-8170
With a copy to: Hagan & Associates
200 East Randolph Drive
Suite 4322
Attn: Robert K. Hagan, Esq.
Phone: (312) 228-1050
Facsimile: (312) 228-0982
If to Pledgee: c/o LaSalle Partners
220 East 42nd Street
7
<PAGE>
New York, New York 10017
Attn: Michael Barnello
Phone: (212) 661-6161
Facsimile: (212) 687-8170
With a copy to: Brown & Wood
One World Trade Center
New York, NY 10048
Attn: Michael F. Taylor, Esq.
Phone: (212) 839-8602
Facsimile: (212) 839-5599
or such other addresses where any party may receive any such communication
or notice as may be designated by written notice to the other parties. Any
notice given pursuant to this section to effect a change of address shall
be effective when received.
(d) Successors and Assigns. This Agreement and all obligations of
----------------------
Pledgor herein shall be binding upon the heirs, executives, successors
and assigns of Pledgor, and shall, together with the rights and
remedies of Pledgee hereunder, inure to the benefit of Pledgee, and
its respective successors and assigns.
(e) Severability. If any term in this Agreement shall be held to be
------------
invalid or illegal or unenforceable in any respect, the validity of
all other terms hereof shall be in no way affected thereby, and this
Agreement shall be construed and be enforceable as if such invalid,
illegal or unenforceable term had not been included herein.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the
same instrument and any other parties hereto may execute this
Agreement by signing any such counterparts.
(g) Other. To the extent permitted by applicable law, Pledgor hereby
-----
waives trial by jury in any proceeding brought for the interpretation
or enforcement of this Agreement or for a determination of the rights
of the parties hereunder. Terms used herein without definition, but
which are defined in the Supplemental Agreement, shall, unless the
context otherwise indicates or requires, have the meaning ascribed in
said Supplemental Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Pledgor and Pledgee have caused this Agreement to be
duly executed as an instrument under seal as of the date first above written.
Pledgee:
-------
LASALLE HOTEL OPERATING
PARTNERSHIP, L.P.
By: LaSalle Hotel Properties, its
General Partner
By: ___________________
Name:
Title:
Pledgor:
-------
**[LASALLE PLAZA PARK LIMITED PARTNERSHIP]**
**[LASALLE SEAVIEW, L.P.]** **[LASALLE LRP
BLOOMINGTON LIMITED PARTNERSHIP]**
**[LASALLE LRP DALLAS HOTEL LIMITED
PARTNERSHIP]** **[LASALLE LRP NEW ORLEANS
HOTEL LIMITED PARTNERSHIP]** **[LASALLE LRP
KEY WEST HOTEL INVESTORS LIMITED
PARTNERSHIP]** **[LASALLE LE MONTROSE
LIMITED PARTNERSHIP]** **[LASALLE SABAL
PLAZA LIMITED PARTNERSHIP]** **[LASALLE
OMAHA HOTEL INVESTORS LIMITED PARTNERSHIP]**
**[LASALLE HOTEL CO-INVESTMENT, INC.]**
By: ___________________, its ____________
By: ___________________
Name:
Title:
9
<PAGE>
EXHIBIT A
PLEDGED UNITS OF LASALLE HOTEL OPERATING PARTNERSHIP, L.P.
Number of Units
---------------
10
<PAGE>
EXHIBIT B
---------
Restrictions on Transfer
------------------------
1. Registration Rights Agreement, dated as of [_________]
2. Lockup Agreement, dated as of [____________]
11
<PAGE>
Exhibit 23.2
The Board of Trustees
LaSalle Hotel Properties
We consent to the use of our reports related to the balance sheet of LaSalle
Hotel Properties as of January 15, 1998, the combined balance sheets of the
Initial Hotels (excluding and the LaGuardia Airport Marriott) as of December 31,
1996 and 1997 and related statements of operations, changes in partners'
capital, and cash flows for each of the years in the three-year period ended
December 31, 1997, the statements of revenues and expenses and cash flows of the
Omaha Marriott Hotel for the period from December 30, 1995 to December 19, 1996,
the balance sheet of Rahn Key West Resort, Inc. as of December 31, 1996 and the
related statements of operations, stockholders' deficit, and cash flows for the
year ended December 31, 1996, the statements of revenues and expenses and cash
flows of the Le Meridien Dallas for the year ended January 31, 1997 and the
period from February 1, 1997 to September 4, 1997, the balance sheet of the MSCC
Limited Partnership as of December 29, 1995 and related statements of
operations, changes in partners' capital (deficit), and cash flows for the
fiscal year ended December 29, 1995, the statements of revenues and expenses and
cash flows of Marriott's Seaview Resort for the period from January 4, 1997 to
November 7, 1997, and the balance sheets of the LaGuardia Airport Marriott as of
December 31, 1995 and 1996 and the related statements of operations, changes in
owners' equity, and cash flows for each of the years in the three-year period
ended December 31, 1996 included herein and to the reference to our firm under
the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
March 27, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 (File
No. 333-45647) of our report dated March 6, 1997, on our audit of the balance
sheet of MSCC Limited Partnership as of January 3, 1997, and the related
statements of income, partners' capital and cash flows for the fiscal year then
ended. We also consent to the reference to our Firm under the caption
"Experts."
/s/ Coopers & Lybrand L.L.P.
------------------------------
Coopers & Lybrand L.L.P.
New York, New York
March 30, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No.1 to Registration Statement No.333-
45647 of LaSalle Hotel Properties on Form S-11 of our report dated April
19,1996, relating to the financial statements of Rahn Key West Resort, Inc. as
of and for the year ended December 31, 1995, appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
March 27, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 14, 1997 on the financial statements of the Canal Street Hotels
Limited Partnership as of December 31, 1996 and 1995 and for the years then
ended (and to all references to our firm) included in or made a part of this
Amended Registration Statement on Form S-11 (File No. 333-45647).
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JAN-15-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 999
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT OF TRUSTEE NOMINEE
To LaSalle Hotel Properties:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
LaSalle Hotel Properties (the "Trust") on Form S-11, and amendments thereto,
which indicate that I have accepted a nomination to become a Trustee of the
Trust subsequent to the closing of the Trust's initial public offering.
/s/ Darryl Hartley-Leonard
---------------------------
Darryl Hartley-Leonard
Dated: March 30, 1998
<PAGE>
EXHIBIT 99.2
CONSENT OF TRUSTEE NOMINEE
To LaSalle Hotel Properties:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
LaSalle Hotel Properties (the "Trust") on Form S-11, and amendments thereto,
which indicate that I have accepted a nomination to become a Trustee of the
Trust subsequent to the closing of the Trust's initial public offering.
/s/ George F. Little, II
---------------------------
George F. Little, II
Dated: March 26, 1998
<PAGE>
EXHIBIT 99.3
CONSENT OF TRUSTEE NOMINEE
To LaSalle Hotel Properties:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
LaSalle Hotel Properties (the "Trust") on Form S-11, and amendments thereto,
which indicate that I have accepted a nomination to become a Trustee of the
Trust subsequent to the closing of the Trust's initial public offering.
/s/ Donald S. Perkins
---------------------------
Donald S. Perkins
Dated: March 30, 1998
<PAGE>
EXHIBIT 99.4
CONSENT OF TRUSTEE NOMINEE
To LaSalle Hotel Properties:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
LaSalle Hotel Properties (the "Trust") on Form S-11, and amendments thereto,
which indicate that I have accepted a nomination to become a Trustee of the
Trust subsequent to the closing of the Trust's initial public offering.
/s/ Shimon Topor
--------------------
Shimon Topor
Dated: March 30, 1998
<PAGE>
EXHIBIT 99.5
CONSENT OF TRUSTEE NOMINEE
To LaSalle Hotel Properties:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
LaSalle Hotel Properties (the "Trust") on Form S-11, and amendments thereto,
which indicate that I have accepted a nomination to become a Trustee of the
Trust subsequent to the closing of the Trust's initial public offering.
/s/ Donald A. Washburn
---------------------------
Donald A. Washburn
Dated: March 30, 1998
